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Federal Register / Vol. 86, No. 121 / Monday, June 28, 2021 / Notices or unannounced basis when the Members operational difficulties associated with COVID19 meetings abate, nationally or locally as relevant, and the challenges the Member is facing in light of the public health and safety concerns make such physical, on-site visits feasible, using reasonable best efforts. Finally, to underscore the limited duration of proposed supplementary material expressly states that the temporary relief would not extend to a Members inspection requirements beyond calendar year 2021
and that such inspections must be conducted in compliance with IEX Rule 5.110c.

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D. Documentation Requirement In general, IEX Rule 5.110c2
describes the documentation requirements associated with conducting internal inspections. The rule requires a member to reduce the inspection and review conducted under IEX Rule 5.110c1 to a written report and specifies how long the member must keep the report on file.27 If applicable to the location being inspected, IEX Rule 5.110c2A
specifies that the inspection report must include, without limitation, the testing and verification of the members policies and procedures, including supervisory policies and procedures for:
i Safeguarding of customer funds and securities; ii maintaining books and records; iii supervision of supervisory personnel; iv transmittals of funds from customers to third party accounts, from customer accounts to outside entities, from customer accounts to locations other than a customers primary residence, and between customers and registered representatives, including the hand delivery of checks; and v changes of customer account information, including address and investment 27 In addition to requiring Members to conduct inspections of their offices and locations on a designated frequency, IEX Rule 5.110c generally requires a Member to retain a written record of the date upon which each review and inspection occurred, reduce a locations inspection to a written report and keep each inspection report on file either for a minimum of three years or, if the locations inspection schedule is longer than three years, until the next inspection report has been written. If applicable to the location being inspected, the inspection report must include, without limitation, the testing and verification of the members policies and procedures, including supervisory policies and procedures, in specified areas. See IEX Rule 5.110c2. In addition, to prevent compromising the effectiveness of inspections due to conflicts of interest, the rule requires a Member to ensure that the person conducting the inspection is not an associated person assigned to the location or is not directly or indirectly supervised by, or otherwise reporting to, an associated person assigned to that location. See IEX Rule 5.110c3.

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objectives changes, and validation of such changes. In addition to the requirements under IEX Rule 5.110c2, proposed Supplementary Material .15d would require supplemental documentation by a Member that avails itself of the remote inspection option. The Member must maintain and preserve a centralized record for calendar year 2021 that separately identifies: 1 All offices or locations that had inspections that were conducted remotely; and 2 any offices or locations that the Member determined to impose additional supervisory procedures or more frequent monitoring, as provided in Supplementary Material .15c. A
Members documentation of the results of a remote inspection for an office or location must identify any additional supervisory procedures or more frequent monitoring for that office or location that were imposed as a result of the remote inspection. IEX believes that this documentation requirement would help readily distinguish the offices and locations that underwent remote inspections and their attendant supervisory procedures, and their more frequent monitoring, as applicable. IEX
notes that even in the current environment, Members have an ongoing obligation to establish and maintain a system to supervise the activities of their associated persons that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable IEX rules. IEX emphasizes that its proposed rule change is not intended to lessen the core obligations prescribed under IEX Rule 5.110. IEX
believes that proposed Supplementary Material .15, which would permit firms to remotely inspect, subject to specified requirements described above, their offices and locations for any calendar year 2021 inspections, instead of an onsite visit to the office or location would provide Members a way to comply with IEX Rule 5.110c that would not materially diminish, and is reasonably designed to achieve, the investor protection objectives of the inspection requirements under these unique circumstances. IEX notes that potential risks that may arise from providing Members the option to conduct their inspections remotely are mitigated by Members use of technology to meet their supervisory obligations on an ongoing basis, the unique circumstances under which they are operating, and the temporary nature of proposed rule change, which would remain in place through December 31, 2021.28 IEX will
continue to monitor the situation and engage with Members, other financial regulators, and governmental authorities to determine whether further regulatory relief or guidance related to IEX Rule 5.110c may be appropriate.
In addition, during the time that proposed Supplementary Material .15
remains in effect, IEX will closely monitor the effectiveness of remote inspections and their impactspositive or negativeon Members overall supervisory systems to assess whether to propose to make permanent a remote inspection option for some or all locations that would not materially diminish, and is reasonably designed to achieve, the investor protection objectives underpinning the requirement to inspect branch offices or locations in accordance with IEX Rule 5.110c.
IEX has filed the proposed rule change for immediate effectiveness and has requested that the SEC waive the requirement that the proposed rule change not become operative for 30 days after the date of the filing, so IEX can implement the proposed rule change immediately.
2. Statutory Basis IEX believes that the proposed rule change is consistent with the provisions of Section 6b 29 of the Act in general, and furthers the objectives of Section 6b5 of the Act 30 in particular, in that it is designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Exchanges rule proposal is intended to harmonize IEXs supervision rules, specifically with respect to the requirements for inspections of Members branch offices and other locations, with those of FINRA, on which they are based. Consequently, the proposed change will conform the Exchanges rules to changes made to corresponding FINRA rules, thus promoting application of consistent regulatory standards with respect to rules that FINRA enforces pursuant to its regulatory services agreement with the Exchange.
In recognition of the impact of COVID19 on performing on-site inspections, the proposed rule change is intended to provide firms a temporary regulatory option to conduct inspections of offices and locations remotely for 29 15

28 See
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