10.1 OSJs, Branches, RSLs, and Inspection Cycles
Key Takeaways
An OSJ is a location conducting one or more of the seven supervisory or operational functions listed in Rule 3110(f); every OSJ is a branch, but not every branch is an OSJ.
OSJs and branches supervising non-branch locations are inspected annually; non-supervisory branches at least every three years; non-branch locations on a documented risk-based schedule.
Rule 3110.19 permits an eligible private residence to be designated a Residential Supervisory Location and treated as a non-branch location when all conditions are met.
Rule 3110.18 is a voluntary three-year remote-inspection pilot effective July 1, 2024; remote method does not change office classification or inspection frequency.
OSJ and Branch Classification
Under Rule 3110(f), an office of supervisory jurisdiction (OSJ) is an office at which one or more specified functions occurs, including order execution or market making; structuring public offerings or private placements; maintaining custody of customer funds or securities; final acceptance of new accounts; review and endorsement of customer orders; final approval of retail communications; or supervision of associated persons at another branch. Classification follows actual activity, not the firm's label.
A branch office is generally a location identified to the public or from which an associated person regularly conducts securities business, subject to listed exclusions and conditions. Every OSJ is a branch office, but a sales office without OSJ functions can be a non-supervisory branch. A location supervising persons at non-branch locations is also treated as a supervisory branch under the rule.
Inspection Cycles
| Location | Rule 3110 inspection cycle |
|---|---|
| OSJ | At least annually on a calendar-year basis |
| Branch supervising one or more non-branch locations | At least annually |
| Non-supervisory branch | At least every three years, more often when risk requires |
| Non-branch location | Regular periodic schedule based on activities and customer contact; a cycle longer than three years requires documented support |
The general presumption is that a non-branch location is inspected at least every three years. Red flags, disciplinary history, production, product mix, outside activities, complaints, turnover or a remote workforce can justify a shorter cycle. The firm records each inspection date and explains its schedule in the procedures.
Residential Supervisory Locations
Effective June 1, 2024, Rule 3110.19 permits an eligible private residence where supervisory activity occurs to be designated a Residential Supervisory Location (RSL) and treated as a non-branch location. The firm and associated person must satisfy detailed eligibility and conditions. Among other limits, the location cannot hold itself out as an office, meet customers there, handle customer funds or securities, maintain required original records there, or conduct prohibited activities; the associated person must be assigned to a registered branch or OSJ and the firm's systems must support supervision.
The firm identifies RSL status through the Form U4 RSL question and maintains the required records and risk assessment. An RSL remains subject to inspection as a non-branch location. "Residential" does not mean unreported, and the designation does not convert an ineligible home office into a compliant location.
Remote Inspection Pilot
Rule 3110.18 established a voluntary three-year Remote Inspections Pilot Program, effective July 1, 2024. An eligible participating firm may use remote means for some or all eligible office inspections if it satisfies the rule's risk assessment, procedures, data submission, recordkeeping and exclusion requirements. Certain firms, offices and locations are ineligible based on disciplinary, regulatory, business or location-specific conditions.
Remote inspection changes method, not frequency, scope, classification or the duty to detect problems. A risk assessment may require an on-site visit. Video, document upload and system access can miss unreported persons, signage, paper records or customer checks, so exception indicators should drive physical follow-up.
Classification Review
At least annually and when duties change, the principal should compare Form U4 and Form BR data, leases, websites, business cards, phone listings, supervision charts, system logins and customer meeting records. Final approval authority or supervision exercised from a location can change its status even if no sign is posted. Correct classification should be followed by amendments, inspections and remediation rather than backdated paperwork.
Home-Office Scenarios
A representative who only performs clerical work from home under an exclusion is different from a principal who approves accounts or communications there. Supervisory authority can make the residence a branch or OSJ unless the RSL rule is available and every condition is satisfied. Customer meetings at the home, public advertising of the address, storage of customer checks or required originals, and associated outside businesses can defeat RSL treatment.
The firm should use system and communication data to locate unreported work sites. Repeated logins, outgoing mail, website addresses and expense reports may show that securities business occurs where Form U4 and Form BR do not. The response includes classification, amendment, inspection, customer-risk review and assessment of why the supervisory system missed the location.
Office inventories should reconcile people to locations and locations to responsible supervisors. Orphaned locations, supervisors assigned to impossible spans of control and registrations with no current inspection date are indicators that the classification process is not operating.
How often must a non-supervisory branch office be inspected under Rule 3110?
Only when a customer complaint is received.
Every five years if it sells only mutual funds.
At least every three years, and more frequently when its risk factors require.
Every year in all cases because every branch is an OSJ.
What does participation in the Rule 3110.18 remote-inspection pilot change?
It turns every inspected residence into an OSJ.
It eliminates the need for written inspection reports.
It permits all firms and offices to stop on-site inspections permanently.
It can change the inspection method for eligible locations, but not classification, required frequency, scope, or supervisory responsibility.
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