Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change to Amend Form U4 and FINRA Rule 3110.19(d) (Obligation To Provide List of RSLs to FINRA) for New RSL Question

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, notice is hereby given that on September 13, 2024, the Financial Industry Regulatory Authority, Inc. (“FINRA”) filed with the Securities and Exchange Commission (“SEC” or “Commission”) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a “non-controversial” rule change under paragraph (f)(6) of Rule 19b-4 under the Act, which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons.

I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change

FINRA is proposing to (1) amend Section 1 (General Information) of the Uniform Application for Securities Industry Registration or Transfer (“Form U4”) to add a new question eliciting information to identify locations as residential supervisory locations (“RSLs”); (2) amend FINRA Rule 3110.19(d) (Obligation to Provide List of RSLs to FINRA) to remove the reference to a list of RSLs and the quarterly timeframe for member firms to provide the list to FINRA and replace it with the requirement that member firms provide current information identifying all locations designated as RSLs in the frequency, manner and format as FINRA may prescribe; and (3) make conforming changes to Section 6 (Registration Requests with Affiliated Firms) of the Form U4 and amend the Form U4 Instructions to account for the new question soliciting RSL information (“RSL Question”).

The text of the proposed rule change is available on FINRA's website at http://www.finra.org, at the principal office of FINRA and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

In its filing with the Commission, FINRA included statements concerning the purpose of and basis for the proposed rule change and discussed any comments it received on the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change

1. Purpose

Proposed Amendment to Section 1 (General Information) of Form U4 To Add a New RSL Question

Effective June 1, 2024, FINRA Rule 3110.19 permits a member firm to designate a private residence at which an associated person engages in specified supervisory activities, subject to certain safeguards and limitations, as an RSL, a non-registered location.

Currently, Rule 3110.19(d) requires a member firm that elects to designate any of its offices or locations as an RSL to provide FINRA with a current list of those offices or locations by the 15th day of the month following each calendar quarter in the manner and format ( e.g., through an electronic process or such other process) as FINRA may prescribe. As part of FINRA's proposal to adopt Rule 3110.19, FINRA committed to exploring ways for member firms to provide information identifying their RSLs to FINRA and other securities regulators in an efficient and timely manner, including by identifying RSLs to the Central Registration Depository (“CRD®”) using FINRA Gateway as a possible option. In general, commenters to the proposal suggested that FINRA consider leveraging the CRD system to identify and track RSLs, and FINRA received similar suggestions from engagement with members of its advisory committees and other interested parties. Noted benefits of this approach included an increase in the timeliness and accuracy of the RSL information and enhanced efficiency of providing the information to FINRA in an automated fashion rather than manually created lists of RSLs.

Following a thorough review of the various options for member firms to identify their RSLs to FINRA, and in consideration of the comment letters submitted to the SEC in connection with the proposal to adopt Rule 3110.19 and other feedback FINRA has received, FINRA has determined that amending Form U4 to add the proposed new RSL Question would be the most appropriate manner for member firms to indicate a non-registered location that is identified on Form U4 a private residence is an RSL by responding “Yes” or “No.” Therefore, FINRA is prescribing that member firms must comply with Rule 3110.19(d), as proposed to be amended, by submitting such information to FINRA via the proposed RSL Question on Form U4.

As noted, the CRD system includes information reported on the uniform registration forms that member firms and regulatory authorities complete and maintain as part of the securities industry registration and licensing process. Member firms use Form U4 to register associated persons with FINRA, other self-regulatory organizations (“SROs”), and jurisdictions as appropriate. The Form U4 elicits registration information, which consists of, among other things, administrative, employment, criminal, regulatory, customer complaint, and financial information about associated persons. The administrative information elicited on Form U4 includes work and residential location information about a member firm's associated persons, including the offices and locations (registered and unregistered) to which those persons are assigned.

FINRA believes that the most efficient, timely, and useful means for member firms to provide information identifying RSLs to FINRA is through the Form U4. Because member firms currently provide work and residential information about their associated persons through the Form U4 and keep such information up-to-date on an ongoing basis, FINRA believes that the proposed RSL Question on Form U4 would leverage existing processes to access and update Form U4 information to the CRD system and provide member firms with a uniform way to submit information to identify their RSLs in a manner with which they are familiar. FINRA believes that prescribing the Form U4 as the method of providing information identifying RSLs to FINRA would also allow member firms using FINRA's API Platform to respond to the proposed RSL Question for multiple locations simultaneously through an efficient machine-to-machine upload process. In addition, the RSL information would be readily accessible to securities regulators because it would be available in the CRD system, which FINRA, state, and other regulatory authorities use in connection with their licensing and regulatory activities.

For these reasons, FINRA is proposing to amend Section 1 (General Information) of the Form U4 to add a RSL Question that, when a member firm has indicated that an associated person's office of employment address is a non-registered location that is identified on Form U4 as a private residence, would ask, “Is this Office of Employment address an RSL?” and prompt the member firm to answer either “Yes” or “No.” The proposed RSL Question would also state that if “Yes” is selected to the RSL Question, the member firm confirms that the location is designated as an RSL as defined in FINRA Rule 3110. While FINRA acknowledges that the RSL reporting process would result in a slight extension of the previously announced October 15, 2024 initial RSL reporting deadline, FINRA believes the later reporting start date would ultimately result in a more timely and efficient process going forward that would yield many benefits that promote investor protection and are in the public interest. As noted above, FINRA believes that by changing the RSL reporting mechanism to the Form U4 rather than a quarterly list, the proposed rule change would: (1) leverage existing reporting processes to increase the timeliness and accuracy of RSL information; (2) enhance the efficiency of providing RSL information to FINRA in an automated fashion; and (3) make the RSL information more readily accessible to securities regulators.

Proposed Amendment to Rule 3110.19(d)

Currently, Rule 3110.19(d) provides that a member firm that elects to designate any of its offices or locations as an RSL is required to provide FINRA with a list of the RSLs by the 15th day of the month following each calendar quarter in the manner and format ( e.g., through an electronic process or such other process) as FINRA may prescribe. However, the FINRA By-Laws impose a 30-day timeframe upon firms to keep Form U4 current at all times, and because the proposed RSL Question would be part of the Form U4, the 30-day updating requirement makes unnecessary the quarterly timeframe for firms to provide FINRA a list of RSLs as currently required under Rule 3110.19(d). As such, FINRA is proposing to make a conforming change to Rule 3110.19(d) to replace the requirement for member firms to provide to FINRA a quarterly list of RSLs in the manner and format prescribed by FINRA with the requirement for member firms to provide to FINRA current information identifying their RSLs in the frequency, manner and format prescribed.

Under the proposed rule change, the requirement for member firms to provide a list of RSLs to FINRA would no longer be necessary since they would be reporting information identifying their RSLs via Form U4 and such information would be available to FINRA in the CRD system. Because FINRA and other securities regulators have access to the information in the CRD system in connection with their licensing and regulatory activities, they would be able to view the most current information about a member firm's RSLs at any time. Accordingly, this proposed amendment to remove the quarterly RSL list requirement is appropriate to align with the proposed amendment to Form U4 to include the RSL Question.

Also, in light of the proposed amendment to Form U4 to include the RSL Question, the quarterly timeframe currently provided in Rule 3110.19(d) does not align with the timing requirements for Form U4 amendments. Therefore, the proposed rule change would conform the timeframe pursuant to which member firms would be required to provide to FINRA information identifying their RSLs by removing the reference to the quarterly basis currently set forth in Rule 3110.19(d). Under the FINRA By-Laws, member firms and associated persons have a continuing obligation to ensure that a Form U4 is timely updated when an event or proceeding occurs that renders a prior response on the form inaccurate or incomplete; specifically, not later than 30 days after learning of the facts and circumstances giving rise to the change.

While FINRA acknowledges that the RSL reporting process would result in a slight extension of the previously announced October 15, 2024 initial RSL reporting deadline to December 26, 2024, FINRA believes that, under most circumstances, the reporting of RSL designations via the Form U4 would provide FINRA and other securities regulators this information on a more timely basis than the quarterly cadence currently set forth under Rule 3110.19(d) and would make the information more readily accessible to FINRA and other securities regulators. In this regard, the locations or offices that member firms have designated as RSLs would be reported to FINRA on a rolling basis, consistent with the requirements to keep information current on the Form U4, rather than only four times per year. As a result, FINRA and other securities regulators may receive more current information going forward for use in connection with their licensing and regulatory activities than they would have received if the RSL information was first provided through a quarterly RSL list on October 15, 2024, as previously announced in Regulatory Notice 24-02. FINRA believes that, on balance, the slight extension in the deadline for initial RSL reporting would be offset by the benefits from the efficiencies and timeliness resulting from the use of the ongoing reporting processes associated with Form U4 reporting.

Other Proposed Conforming Amendments

FINRA is proposing to add the same RSL Question in Section 1 (General Information) to Section 6 (Registration Requests with Affiliated Firms) of Form U4. Section 6 (Registration Requests with Affiliated Firms) of the Form U4 is similar to Section 1 (General Information) and is used by a member firm to request registration for an associated person with an affiliate of the member firm. As in Section 1 (General Information), the RSL Question in Section 6 (Registration Requests with Affiliated Firms) would also prompt the member firm, when it has indicated that an associated person's office of employment address is a non-registered location that is identified on Form U4 as a private residence, to answer either “Yes” or “No,” and state that if “Yes” is selected, the member firm confirms that the location is designated as an RSL as defined in FINRA Rule 3110.

FINRA also is proposing to amend the Form U4 Instructions to account for the new RSL Question. The proposed conforming update to the instructions would provide: “If the Office of Employment address is a non-registered location and designated as a private residence, enter `yes' or `no' to indicate whether the Office of Employment address is a residential supervisory location as defined in FINRA Rule 3110. (Note: this question can be answered only if the Private Residence Check Box has been checked.) If `yes' is selected, the firm confirms that this location is designated as an RSL as defined in FINRA Rule 3110.”

Implementation Procedures

The implementation date of the proposed rule change will be November 26, 2024. An implementation date that is 30 days prior to the date by which member firms must provide FINRA information identifying their RSLs under amended Rule 3110.19(d) would also align with the requirements of the FINRA By-Laws for member firms and registered persons to keep information disclosed on registration forms current at all times and that amendments to such forms must be filed with FINRA and other applicable regulators not later than 30 days after learning of the facts and circumstances giving rise to the change.

FINRA is proposing to prescribe, for member firms that have indicated on Form U4 that an associated person's office of employment address is a non-registered location that is a private residence, the following procedures for responding to the proposed RSL Question. The proposed RSL Question would prompt member firms to answer the question as either “Yes” or “No” within the timeframes set forth in the following chart: