FINRA Seeks Public Comment on Efforts to Modernize Member Workplace Rules

On April 14, 2025, FINRA announced in a regulatory notice (Notice) that it is seeking public comment on a broad effort to revise its regulatory requirements to better reflect how the modern workplace operates with advanced technology and evolving business practices.¹

In general, the Notice offers helpful insight into the areas where FINRA believes there may be significant regulatory burdens on firms and where those burdens could potentially be reduced. Firms should consider taking advantage of FINRA’s invitation to comment on its modernization efforts and educate receptive staff at FINRA about any improvements that would promote favorable industry changes. We encourage firms to review the Notice and reach out to the Sidley contacts below or the Sidley attorney with whom you usually work to discuss further.

The comment deadline is June 13, 2025.

Branch Offices and Hybrid Work

The Notice seeks input on the designation of specific types of offices when determining supervisory requirements under FINRA Rule 3110. This is an opportunity for firms to weigh in on how today’s work environment should be addressed when looking at the definitions of office footprint (e.g., offices of supervisory jurisdiction, branch offices). Indeed, FINRA is looking to modernize the definitions in light of technological advances and evolving hybrid work arrangements. Firms may wish to suggest changes to the definitions, supervisory requirements, and registration or designation of offices under FINRA Rule 3110; FINRA is especially interested in comments that seek to eliminate unnecessary burdens or ambiguities.

The Notice also invites suggestions for revisions related to FINRA’s Remote Inspections Pilot Program (Pilot Program) and Residential Supervisory Location Program (RSL Program) now that firms have experienced the programs for a number of months.

Registration Process and Information — Uniform Registration Forms

With respect to Uniform Registration Forms, the Notice seeks input on

• changes to registration processes and systems as well as the information collected by Uniform Registration Forms, such as information about workforce locations, in light of modern technologies and the evolution of the workplace
• what information from Uniform Registration Forms is made available to the public and how this information is presented

Underscoring the importance of this comment process, FINRA has recently responded to suggestions regarding registered persons’ private residence information. Last year, in response to privacy and safety concerns raised by broker-dealers (BDs), FINRA amended FINRA Rule 8312 to exclude from release through BrokerCheck the street address of a registered location that is reported and identified to FINRA as a private residence.²

Qualifications and Continuing Education

Firms have a real opportunity to potentially shape changes to qualification examinations, continuing education programs, or the Maintaining Qualifications Program given that the Notice suggests FINRA is interested in meeting firms’ evolving needs with respect to these areas. The Notice also invites firms to share what technologies or assessment tools they are leveraging to identify appropriate candidates for positions that require registration.

Delivery of Information to Customers

Given the greater familiarity with electronic communications and customer expectations of seamless access to accounts, FINRA is looking at delivery requirements between firms and customers. As such, firms will want to consider how decades-old rules may be ripe for revamping. The Notice also requests comment on firms’ use of negative consent letters to transfer customer accounts to another firm. Specifically, FINRA asks whether it should consider changes to electronic delivery guidance and/or the guidance setting forth the narrow set of situations where negative consent letters are permissible.

Recordkeeping and Digital Communications — Artificial Intelligence Key Focus

The Notice broadly solicits comments on challenges firms face while ensuring compliance with recordkeeping requirements in connection with electronic communications, especially in light of the use of emerging communication technologies. FINRA’s requests for comment in this area present firms with opportunities to provide feedback on the challenges firms have experienced regarding compliance with electronic communication recordkeeping requirements during remedial efforts in response to the recent off-channel communication enforcement actions by the SEC.

• FINRA is particularly interested in the recordkeeping challenges associated with firms’ use of emerging artificial intelligence (AI) communications (e.g., AI-powered chatbots, AI-generated transcripts or summaries of meetings).
• Firms may wish to weigh in on what other categories of records that might fall under the broad “business as such” standard, which governs the scope of communications that must be retained pursuant to Rule 17a-4 under the Securities Exchange Act of 1934 (Exchange Act), may be costly or difficult to maintain.

Compensation Arrangements

The Notice seeks suggested rulemaking changes related to supervising transaction-based compensation that individuals receive through a personal service entity (PSE) and programs that pay continuing commissions to retired registered representatives (RRs). With respect to PSEs, the SEC staff over the years have denied many no-action requests to allow an RR of a BD to have the RR’s commission revenues or other transaction-based compensation, earned while the RR was appropriately registered with and supervised by the BD, paid to a PSE that the RR has established and controls “away” from the BD (usually, the RR is the sole owner and officer/member of the PSE). The request letters typically seek such an arrangement for state tax planning purposes, but SEC staff have routinely denied these requests on the grounds that the PSE would be an unregistered broker in violation of Section 15(a)(1) of the Exchange Act. FINRA’s request for comment emphasizes that any changes to ease firms’ regulatory burdens in these areas must not compromise the firms’ ability to effectively supervise these types of compensation agreements. That said, FINRA might have limited authority/ability to provide relief without the approval of the SEC.

Fraud Protection — Senior and Vulnerable Investor Focus

FINRA is soliciting comment on the risk of fraud in light of increasingly sophisticated AI tools, especially as it relates to senior and vulnerable investors. In particular, the Notice asks whether any changes should be made to FINRA Rules 2165 and 4512 given the challenges posed by technological advances, such as further extending the hold period under FINRA Rule 2165. As a reminder, FINRA Rule 2165 allows firms to place temporary holds on transactions or disbursements in light of a reasonable suspicion of financial exploitation, and FINRA Rule 4512 requires firms to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of all noninstitutional customer accounts.

Leveraging FINRA Systems to Support Member Compliance

Last, the Notice seeks feedback on whether FINRA should consider expanding the use of its technology systems, such as Financial Professional Gateway (FinPro), Financial Learning Experience (FLEX), and its CRD system, to help firms with regulatory compliance and reduce any unnecessary burdens. Some ideas proposed by FINRA include assisting firms with onboarding, document delivery to associated persons, and recordkeeping.

Conclusion

The Notice provides a rare offer from FINRA for firms to look across a host of key areas and assess what potential changes can address evolving office footprints, remote or hybrid locations, office designations, qualifications, registrations, and recordkeeping, to name a few. FINRA currently appears open to the consideration of regulatory reforms. Firms should consider taking the opportunity to address regulatory “pain points” — issues where the costs of compliance outweigh any customer benefits — in what may be a once-in-a-decade chance to achieve reform.

¹ FINRA Regulatory Notice 25-07 (Apr. 14, 2025), https://www.finra.org/sites/default/files/2025-04/Regulation-Notice-25-07.pdf.

² Proposed Rule Change to Amend FINRA Rule 8312 (FINRA BrokerCheck Disclosure), SR-FINRA-2024-010, https://www.finra.org/sites/default/files/2024-06/sr-finra-2024-010.pdf.