On October 12, the Securities and Exchange Commission (SEC) adopted amendments to the electronic recordkeeping requirements for broker-dealers (Rule 17a-4 under the Securities Exchange Act of 1934 sets forth the recordkeeping requirements). The amendments modernize and make more flexible the broker-dealer recordkeeping requirements.
The amendments will become effective 60 days after the date on which the adopting release is published in the Federal Register, which has not yet occurred, after which there will be an additional six-month compliance transition period. The new rules:
- Provide an audit trail alternative to the current WORM — “write once, read many” format requirement, allowing electronic records to be preserved in a manner that permits the re[1]creation of an original record if the original record is modified or erased, provided that a complete time-stamped audit trail meeting certain requirements are met.
- Allow broker-dealers to use cloud-based providers for recordkeeping services, provided the broker-dealer has direct access to the records and the provider files with the SEC and acknowledges the records are the broker-dealer’s property; certain
- Eliminate the safe-place WORM format “escrow” requirement but require that the electronic records are presented in a reasonably usable electronic format (i.e., are compatible with commonly used systems for accessing and reading electronic records).
- Abolish the requirement for the broker-dealer to notify their designated examining authority (DEA), such as Financial Industry Regulatory Authority (FINRA), before implementing an electronic recordkeeping system.
- Allow broker-dealers to designate an executive officer to execute undertakings agreeing to provide the regulatory authorities with necessary information.