New SEC Electronic Recordkeeping Rule – Financial Services

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:

1. 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.




2. 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




3. 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).




4. 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.




5. Allow broker-dealers to designate an executive officer to
   execute undertakings agreeing to provide the regulatory authorities
   with necessary information.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.