FINRA Adjusts to Coronavirus

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

FINRA Adjusts to Coronavirus

April 6, 2020

In the latest episode of Unscripted, FINRA’s podcast, the topic was the one on everyone’s minds, coronavirus.

The two guests were FINRA’s Chief Legal Officer Bob Colby and Head of Member Supervision Bari Havlik.

Colby said this current environment, “It reminds me a lot of 9/11, also there’s elements of ’08 financial crisis, and frankly with the markets moving, there’s some ’87 thrown in.”

As just one sign, the podcast was done remotely, with Havlik from the State of California, and Colby from the State of Virginia.

Colby also said that FINRA was adjusting.

“I don’t think there are any groups that are fully operational,” Colby said.

He said that though all groups were operational, arbitration hearings were being postponed, “until the end of May.”

He said that Zoom meetings were being offered for those seeking arbitration if someone was willing to do it through Zoom.

“The arbitration staff are still on the job, doing what they can,” he added.

In early March, FINRA issued regulatory notice 20-08, “Pandemic-Related Business Continuity Planning Guidance and Regulatory Relief.”

wall street

“Due to the recent outbreak of coronavirus disease (COVID-19), FINRA reminds member firms to consider pandemic-related business continuity planning, including whether their business continuity plans (BCPs) are sufficiently flexible to address a wide range of possible effects in the event of a pandemic in the United States,” FINRA noted on its website.

Havlik said, “We’re really looking for firms to focus on their clients. We want them to make sure that they’re adjusting to their current environment and able to serve their clients to the best of their abilities.”

With that in mind, FINRA has created a frequently asked questions page on its website, which is being updated daily.

The page provides a guide to help firms navigate through the challenge serving their clients during this period.

As one example, FINRA notes that firms should expect to have an enormous increase in call volume from clients seeking guidance.

FINRA suggests, “As discussed in Regulatory Notice 20-08, FINRA understands that members may experience significantly increased customer call volumes or online account usage during a pandemic (e.g., due to significant market movements), which may cause temporary operational challenges. Members are encouraged to review their BCPs regarding communicating with customers and ensuring customer access to funds and securities during a significant business disruption.

“If registered representatives are unavailable to service their customers, members are encouraged to promptly place a notice on their websites indicating to affected customers who they may contact concerning the execution of trades, their accounts, and access to funds or securities. Supervisory control policies and procedures should be considered that will mitigate risks that may arise due to the reduced ability to communicate with customers, inability to rely on mail or other disruption to the existing controls over communications with customers.”

Business continuity planning is required under FINRA rule 4370.

That rule states in part, “Each member must create and maintain a written business continuity plan identifying procedures relating to an emergency or significant business disruption. Such procedures must be reasonably designed to enable the member to meet its existing obligations to customers. In addition, such procedures must address the member’s existing relationships with other broker-dealers and counter-parties. The business continuity plan must be made available promptly upon request to FINRA staff.”

Havlik said that while many firms anticipated for some regional lockdown, but the breadth of this lockdown is unprecedented.

“A lot of business continuity plans probably anticipated a region being out for a period of time.” She said, “Pandemics probably considered a portion of their employees being out of pocket, but I’m not sure anybody anticipated as I said a minute ago, that fact that we’d be working remotely not only across the country but across the world there’d be a lockdown.”

In this environment, supervision is one challenge for firms.

Havlik said, “I think they should continue to think how they are going to supervise the activities of their reps and their interactions with clients, again, in this current environment. We are going to look to see that firms have been thoughtful about their choices.”

FINRA is a self regulatory organization which was formed in 2007 when the regulatory arms of NYSE and NASD merged.

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