FINRA Wants To Serve Docs By Email Amid Crisis Challenges

By Dean Seal
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Law360 (May 8, 2020, 5:12 PM EDT) -- The Financial Industry Regulatory Authority says the shift to remote work caused by the coronavirus pandemic has made it difficult for its employees to serve documents in hard copy as required by law, but a quick rule change could ease the pressure.

FINRA asked the U.S. Securities and Exchange Commission on Thursday to approve a rule change that would allow the brokerage regulator to serve documents by email and augment its operations in other ways to account for difficulties created by the COVID-19 crisis.

"Continuing to require hard-copy service despite the logistical and other challenges presented by the outbreak of the coronavirus could lead to significant delays in FINRA proceedings," the self-regulatory organization said.

The SEC oversees FINRA and has the power to authorize any proposed rule changes it requests, typically after a mandatory 30-day wait period from the filing of the proposal. FINRA is asking the SEC to waive that requirement so it can implement the proposed changes immediately and minimize any slowdowns.

The coronavirus outbreak has led FINRA, like many other players in the financial sector, to employ a work-from-home directive for its staff, consistent with recommendations from public health officials. But doing so makes it "exceedingly difficult to send and receive hard copy mail and conduct in-person meetings and hearings," FINRA said.

FINRA's rules generally don't allow it to serve documents by email, but its proposed rule change would allow, and in some cases require, it to do so until June 15. The organization said it would opt for email instead of hard copy "whenever possible" but would make exceptions in instances where email would not be prudent or create a hardship for the recipient.

The proposed change would not permit FINRA to serve complaints in a disciplinary proceeding by email, due to "heightened fair process concerns," and would thus strike a balance between seeking relief that would minimize disruptions to its operations without compromising investor protection measures and fair process, the organization said.

FINRA is proposing that applicants and respondents be required to file or serve certain documents by email as well, unless a different method is agreed to by both sides, since the remote work environment has made it difficult for FINRA staff to receive and process hard-copy mail.

If approved, the rule change would also extend the 45-day deadline for holding a hearing after one is requested to 135 days and allow similar extensions elsewhere. The requirement that oral arguments in disciplinary proceedings be held in person would also be temporarily shelved in favor of video conferencing.

"The requested relief is a reasonable accommodation to protect the health and safety of all parties participating in these adjudicatory processes while avoiding unnecessary delays to these proceedings," FINRA said.

The organization does not believe that the proposed rule changes would have any negative effect on competition or incur any new costs. Instead, it would create flexibility for both FINRA and industry members as they continue operating through the pandemic. FINRA said it will seek an extension to this relief on June 15 if it is still warranted, but otherwise will allow its rules to revert back to their current requirements.

"FINRA does not believe that the proposed temporary relief compromises fair processes, thus minimizing the negative impact on members, associated persons and other stakeholders," it said.

The SEC did not immediately respond to a request for comment Friday.

--Editing by JoVona Taylor.

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