FINRA previously announced in Regulatory Notice 25-04 that it is launching a broad review to modernize its rules regarding member firms and associated persons and identified the modern workplace as its area of initial focus. Regulatory Notice 25-07 (the Notice), issued on April 14, 2025, seeks input on modernizing FINRA rules to better align with the evolving nature of member workplaces. The comment period for the Notice expires on June 13, 2025.
Historically, FINRA member firms “operated in a paper-based environment and conducted business, including the supervision of associated persons, in conventional office settings.” Correspondingly, FINRA’s rules traditionally required on-site inspections, paper-based notifications and filings, and manual review and storage of hard-copy documents.
Over time, the evolution of technologies and investor expectations of the availability of digital platforms and communication channels have led members to incorporate digital innovations into their day-to-day operations and customer-facing activities. Members also increasingly supervise associated persons pursuant to decentralized supervisory structures. This practice proliferated exponentially with the onset of the COVID-19 pandemic and remote and hybrid work arrangements.
In response, FINRA has adapted its rules, guidance, and processes to support the industry’s evolving technology and workforce arrangements, including by
transitioning the Regulatory Element of the continuing education (CE) program online, permitting electronic signatures on the Form U4 (Uniform Application for Securities Industry Registration or Transfer), launching the Maintaining Qualifications Program (MQP), allowing for video conference hearings, introducing the remote inspections pilot program and providing cybersecurity compliance resources for members.
In the Notice, FINRA seeks comments on how it can continue to adapt its rules, guidance, and processes to better reflect modern workplace practices. FINRA requests comments from members, investors, and other interested parties, asking them to share their perspectives on how FINRA should anticipate emerging technologies and business practices within the industry.
The Notice highlights several key areas for potential modernization, each of which we discuss in more detail below. FINRA also recognizes that “there may be other areas that commenters believe merit attention [that FINRA has not highlighted]” and welcomes information and comments on those areas as well. FINRA also seeks comments on “how FINRA’s rules and processes interact with other regulatory requirements applicable to members and their associated persons.”
Branch Offices and Hybrid Work
FINRA is considering updates to Rule 3110, including reconceptualizing the use of specific types of offices and other locations (e.g., offices of supervisory jurisdiction, branch offices, non-branch locations) in defining supervisory requirements.
FINRA also asks whether the office definitions should be modernized to reflect technological advances and evolving work arrangements such as hybrid work models. As most readers will know, FINRA has already amended Rule 3110 to allow private residences to be designated as residential supervisory locations and is piloting a remote inspections program, but comments on whether and what further revisions or extensions would be helpful are also sought.
Registration Process and Information
Should the registration processes for members, branches, and individuals, including with respect to the information collected pursuant to those processes, change? FINRA is interested in comments on whether change is needed in these areas to address the impacts of modern technologies and the evolution of the workplace, including what information about workforce locations should be collected and how that information is presented.
Such changes could relate to Form BD, Form BR, and Forms U4 and U5, but notably these forms are SEC forms in some cases or filed with and approved by the SEC, and other self-regulatory organizations and states have a similarly strong interest in these forms.
Qualifications and Continuing Education
The qualification and CE requirements administered by FINRA have evolved to benefit from improvements in technology, including transforming the CE program to be responsive to decentralized workforces that are better served by digital courses delivered online. FINRA now invites comments on further potential changes, such as whether new technologies can be leveraged to support candidate assessment and the CE program.
Delivery of Information to Customers; Use of Negative Consent Letters
With the increasing expectation for digital interactions, FINRA is exploring changes to longstanding SEC and FINRA guidance on electronic delivery of information to customers and seeks comments on the costs and risks associated with electronic delivery in light of advances in technology. FINRA also seeks clarification on how to protect customers who are less comfortable with receiving electronic communications. Interestingly, notwithstanding its request for comments, FINRA acknowledges in the Notice that delivery of required documents “is largely governed by longstanding SEC releases on electronic delivery and FINRA guidance aligned with the SEC releases[.]”[1]
Moreover, the use of electronic media to deliver communications may also be governed by the Electronic Signatures in Global and National Commerce Act (E-SIGN). E-SIGN was enacted on June 30, 2000, two months after the SEC issued its 2000 Release.[2]
The current FINRA policies on the use of negative consent letters when transferring customer accounts is limited to certain specific situations and conditions.[3] FINRA is considering whether general principles-based guidance or an alignment with the requirements applicable to investment advisers would be useful. Comments on alternative approaches as well as the overall process would likely be helpful in FINRA’s evaluation of next steps in this area.
Recordkeeping and Digital Communications
The absence of a definition for the term “business as such” in Exchange Act Rule 17a-4(b)(4), which triggers recordkeeping requirements relating to volumes of communications by broker-dealers and their associated persons, is another area in which FINRA requests guidance (and yet another area that is directly in the purview of the SEC).
FINRA further seeks input on recordkeeping generally in light of technological advancements, recordkeeping challenges posed by AI-generated communications, and the extent to which the amorphousness of “business as such” poses challenges with respect to compliance with recordkeeping requirements generally.
FINRA also seeks comments on whether it should change its rules, guidance, or processes relating to communications with the public (e.g., FINRA Rule 2210) to address new technologies.
Compensation Arrangements
FINRA acknowledges that rules and guidance regarding compensation arrangements, including the use of personal services entities (PSEs) and continuing commission programs, are in many ways out of sync with modern workplace arrangements. With respect to PSEs, FINRA notes that members may be reluctant to pay transaction-based compensation to PSEs because of uncertainty around broker-dealer registration and supervision obligations and FINRA commission requirements.
In addition, FINRA Rule 2040 may present challenges for registered representatives wishing to receive continuing commissions given that it does not permit such payments unless the registered representative contracts for the commissions before an unexpected life event that impacts the representative’s ability to work. As a result, FINRA is interested in whether any regulatory or rulemaking changes could facilitate these types of compensation arrangements while continuing to preserve effective broker-dealer supervision.
Yet again, it is worth noting that these issues tread into SEC ground as well, given that they are inextricably intertwined with issues of “broker” status, and related registration requirements, under the Exchange Act.
Fraud Protection
FINRA is also focused on ensuring that members have all the necessary tools to proactively prevent customer harm, particularly given threats accelerated by new technologies. Among other things, FINRA would like input on how technological advances have helped or hindered members’ ability to fight fraud under FINRA rules, guidance, and processes and whether there are tools FINRA can provide to members to further facilitate protection of senior and vulnerable investors from fraud and other types of financial exploitation.
Leveraging FINRA Systems to Support Member Compliance
FINRA seeks comments on whether it should consider ways to enhance its compliance systems (e.g., the CRD system, Financial Professional Gateway, Financial Learning Experience) to create efficiencies for its members or provide improved functionality.
This is a great opportunity for members to provide comments on the key areas discussed above or other areas that have posed regulatory challenges, including FINRA rules that may not align with other regulators’ requirements. In addition, this is an opportunity to communicate publicly about challenges and inefficiencies presented by certain SEC requirements and guidance. FINRA will accept comments until June 13, 2025.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:
[1] The SEC’s guidelines on electronic delivery have been articulated via a series of interpretations (principally in 1995, 1996, and 2000), through which the SEC has made clear that electronic media may be used to satisfy legal requirements relating to the delivery of disclosure documents and other communications. See Use of Electronic Media for Delivery Purposes, Exchange Act Release No. 36345 (Oct. 6, 1995), 60 Fed. Reg. 53458 (Oct. 13, 1995); Use of Electronic Media by Broker-Dealers, Transfer Agents, and Investment Advisers for Delivery of Information; Additional Examples under the Securities Act of 1933, Securities Exchange Act of 1934, and Investment Company Act of 1940, Exchange Act Release No. 37182 (May 9, 1996), 61 Fed. Reg. 24644 (May 15, 1996); Use of Electronic Media, Exchange Act Release No. 42728 (Apr. 28, 2000), 65 Fed. Reg. 25843 (May 4, 2000) (the 2000 Release). Under the SEC’s guidance, a broker-dealer (or an investment adviser or issuer) must be able to show that it meets three principal requirements when effecting delivery electronically: access, notice, and evidence of delivery (or, in lieu of evidence of delivery, informed client consent).
[2] E-SIGN provides that if a statute, regulation, or other rule of law requires that information relating to a transaction be provided or made available to a consumer in writing, the use of an electronic record to provide such information satisfies the delivery requirement if consent is obtained from the consumer in accordance with E-SIGN. E-SIGN establishes specific requirements as to the nature of the consumer’s consent and the disclosure that must be made to the consumer in connection with that consent.
[3] See, e.g., NASD Notice to Members 02-57 (Sept. 2002); NASD Notice to Members 04-72 (Oct. 2004); Memorandum of NASD Office of General Counsel, Regulatory Policy and Oversight (Oct. 20, 2004); Memorandum of NASD Office of General Counsel, Regulatory Policy and Oversight (Nov. 8, 2004); Interpretive Letter to Michael R. Trocchio, Esq., Bingham McCutchen LLP (Feb. 3, 2005). See also, e.g., Frequently Asked Questions Concerning the Amendments to Certain Broker-Dealer Financial Responsibility Rules, Division of Trading & Markets, SEC (Mar. 6, 2014, last updated July 1, 2020) (stating that bulk transfers of customer accounts that have free credit balances based on negative consent letters consistent with FINRA guidance should not be deemed to result in violation of Exchange Act Rule 15c3-3(j)(2)(i)).