At your death, your beneficiaries will need this information to determine how to take distributions from your account. New paragraph (e)(6) of Rule 17a-4 requires a firm to keep for three years a copy of all reports that a securities regulatory authority has requested or required a specific firm to create. The release will publish on November 2, 2001. You may have a difficult time obtaining copies of records from your broker if the time your broker must keep the records has expired. See NASD Rule 2860(b)(16)(C) and IM-2860-2, and NYSE Rule 721(c) and Supplemental Material at .30 regarding options accounts. This provision will allow regulators to review account record information for at least the six years immediately prior to the examination or investigation. Broker-dealers generally maintain account record information for at least the life of the account to facilitate a number of business purposes, including suitability determinations and supervision of accounts and representatives. FINRA IS A REGISTERED TRADEMARK OF THE FINANCIAL INDUSTRY REGULATORY AUTHORITY, INC. Therefore, the Commission believes it is appropriate to retain a definition of the term "associated person" in the rule. The Securities and Exchange Commission (SEC) lists certain documents and records that every registered broker needs to create, keep, and give to investors. 46 This requirement is in addition to other recordkeeping requirements such as Rule 17a-4(b)(4), which requires firms to keep originals of all correspondence received. The memorandum need not show the identity of any person other than the associated person responsible for the account who may have entered the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible associated person: in that circumstance, the member, broker or dealer shall produce upon request by a representative of a securities regulatory authority a separate record which identifies each other person. Final Rule: Books and Records Requirements for Brokers and Dealers 24 The Commission believes that this requirement is consistent with SRO requirements regarding customer accounts such as those discussed above in footnote 23. However, because firms already are required to keep originals of incoming written complaints,47 rather than make a separate record, firms have the option under this rule to keep the original complaint along with a record of the disposition of the complaint, if kept by name of associated person. As discussed above, new Rule 17a-4(k) was modified to provide that, instead of requiring that firms either maintain copies of records in the office to which they pertain, broker-dealers now have the option of producing certain records which relate to a particular office "promptly." While the bulk of this rule is addressed to shippers and carriers, brokers too are required . Paragraph (b)(4) of Rule 17a-4 previously required that each broker-dealer keep originals of all communications received and copies of all communications sent by the firm relating to its business as a broker-dealer, including inter-office memoranda and communications. Before sharing sensitive information, make sure youre on a federal government site. 119 The estimated total additional hours to provide customers with account record information is 880,369 hours ((((22,795,000 x 1) + (705,000 x 7)) + ((4,559,000 x 1) + (141,000 x 7)) + ((3,419,250 x 1) + (105,750 x 7))) / 60 minutes). (1) The term office shall have the meaning set forth in 240.17a-3(g)(1). 65 The term "immediate family," as used in paragraph (k), should be interpreted to have the same meaning as it does in NASD IM-2110-1(l)(2). 122 See Comment Letter from Morgan Stanley Dean Witter, p. 4. In response to these concerns and others, the Commission has modified the amendments to allow firms the flexibility to promptly produce records at the offices to which they relate instead of maintaining those records at the offices,147 and has added exemptions in recognition of present business practices.148. L. 94-29, 89 Stat. Further, firms will incur additional costs to update account information when customers notify the firm that their account record information has changed. Removing from paragraph (a)(11)(ii) the word "he" and in its place adding "it"; c. Removing from redesignated paragraphs (a)(12)(i)(A) and (a)(12)(i)(B) the word "His" and in its place adding "The associated person's"; d. Removing from redesignated paragraphs (a)(12)(i)(A), (a)(12)(i)(C), and (a)(12)(i)(H) the word "his" and in its place adding "the associated person's"; e. Removing from redesignated paragraphs (a)(12)(i)(D) and (a)(12)(i)(F) the word "him" and in its place adding "the associated person"; f. Removing from redesignated paragraphs (a)(12)(i)(D), (a)(12)(i)(E), (a)(12)(i)(F) and (a)(12)(i)(H) the word "he" and in its place adding "the associated person"; and. Shredding is particularly important for any records bearing your account numbers and personal identification numbers. There are additional record-keeping requirements for remittance service providers and digital currency exchange providers. Section 17(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act" or "SEA") requires registered broker-dealers to make, keep, furnish and disseminate records and reports prescribed by the Securities and Exchange Commission ("SEC"). The Commission believes that firms will have senior compliance personnel ensure compliance with these amended rules. Although these requirements were similar to Commission and SRO requirements, differences existed that broker-dealers had to track and comply with. Seventeen of these offices had two or less associated persons working there. The State Securities Regulators stated, in their comment letters, that they had encountered excessive and costly delays when conducting examinations when records were kept at another office. 13 A number of firms have asked for guidance on the meaning of the term "to the extent feasible." 3. In addition, SRO rules already require that firms record and maintain certain of this information,131 and firms, to assist in their supervision of the activities of their associated persons and to assure that commissions are properly paid, already record the identity of persons as required under the amendments. 2.) Instead, the Commission will defer to SRO rules as to which communications with the public must be approved by a principal of the firm. Firms may store their books and records in one of three formats or media: Micrographic media and electronic storage media are subject to specific requirements, which are discussed under SEA Rule 17a-4(f). Any additional burden placed on broker-dealers by these amendments is dependent on the number of accounts serviced, the number of associated persons employed, and the number of offices operated. The Commission estimates that 8,225,000 (4,700,000 + 3,525,000) customers will update their account record, and that broker-dealers will spend an additional 228,244 hours each year ((7,978,250 account records x 1.5 minutes / 60 minutes) + (246,750 account records x 7 minutes / 60 minutes)) sending the updated account records to customers. In addition, the Commission estimates that it will cost each firm an average of $50.83 per year to ensure compliance with paragraphs (a)(12) and (a)(19) of Rule 17a-3 (regarding associated person records),138 resulting in an aggregate cost of approximately $0.4 million per year. Because different terms ascribed to categories of investment objectives may vary among firms, the firms must describe these terms when furnishing the account record to customers. The amendments also require broker-dealers to make records which indicate that they have complied with applicable regulations of certain securities regulatory authorities,184 which list persons who can explain the information in the broker-dealer's records,185 and that list principals responsible for establishing compliance policies and procedures.186 Firms presently maintain records to evidence compliance with SRO and other rules; therefore, no additional burden is created by this amendment. For the reasons set forth in the preamble, Title 17 Chapter II of the Code of Federal Regulation is amended as follows: PART 240 GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934. 1. The amendments should benefit broker-dealers by assuring that they have up-to-date information when making investment recommendations and reviewing suitability of certain transactions or investment strategies. This requirement is consistent with SRO rules regarding the signatures of associated persons and principals when opening customer accounts. 173 See Comment Letter from Titan Value Equities, Inc., p. 2. 78c(a)(18). An important aspect of the amendments is that broker-dealers are required to produce records at offices within a State. Of those commenters, thirty were broker-dealers,84 twenty-two were States,85 two were consumer groups,86 two were other groups,87 and one was an individual.88 Most of the commenters (including all of the broker-dealer commenters) argued that the costs outweighed the benefits of the reproposed amendments and that the cost estimates provided in the Reproposing Release were too low. 23 17 CFR 240.17a-3(a)(17)(i)(A). Firms may, of course, elect to provide this information to customers more frequently in order to coincide with other mailings. The amendments would affect these Small Business' Broker-Dealers because they, like other broker-dealers, would have to create and maintain certain additional books and records and would have to provide access to specific books and records at each office. While the Reproposal would have required that complaints relating to an office be maintained in that office or be produced on the business day they are requested, the amendments as adopted require only that records of complaints for an office be produced promptly at the office to which the complaints relate. 1 to 2; Idaho, pp. In addition, SEC and SRO staffs must be able to examine the results of such audit system, and the broker-dealer must retain the audit results for the same amount of time required for the audited records. Broker-dealers generally maintain these records already to comply with Federal laws or regulations, SRO rules, or in the normal course of business. How long should I keep financial records for closed brokerage accounts The memorandum need not show the identity of any person, other than the associated person responsible for the account, who may have entered or accepted the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible associated person; in that circumstance, the member, broker or dealer shall produce upon request by a representative of a securities regulatory authority a separate record which identifies each other person. seq., adopted on October 11, 1996. 78q(b)) that are requested by the representative of the Commission. The Commission also notes that the recordkeeping requirements permit broker-dealers to keep records in different formats or systems as long as specified information can be sorted and produced upon request. If a request is unusually large or complex, then the firm should discuss with the regulator a mutually agreeable time-frame for production.72. 106 The Commission estimates that these amendments to Rule 17a-4 will take broker-dealers an additional four hours each per year. 104 See Comment Letter from State of Michigan Department of Consumer & Industry Services, p. 1. Prior to NSMIA many States had laws or rules that required broker-dealers to make and keep certain books and records that allowed the State Securities Regulators to conduct examinations and investigations to review for, among other things, sales practice violations.6 NSMIA also provides that the Commission must consult periodically with the States concerning the adequacy of the Commission's Books and Records Rules,7 particularly relating to the need by State Securities Regulators to have records readily accessible for their examinations.8. If a Brokerage Firm Closes Its DoorsFINRA. In lieu of making this record, a member, broker or dealer may elect to produce the required information promptly upon request of a representative of a securities regulatory authority. Paragraphs (a) and (b)(1) of Rule 17a-4 list certain records required under Rule 17a-3 that must be kept for six and three years, respectively. Some commenters requested clarification as to how this information must be maintained and whether all the information and signatures must be included on the same form.26 Although a broker-dealer must create a single record for each account, that record may consist of more than one document, such as two or more account applications. Firms should also ensure that their policies and procedures provide for the due diligence analysis of the recordkeeping service provider to determine whether the recordkeeping service is capable of performing these functions, particularly in light of the risks of cyberattacks. The account record shall indicate whether it has been signed by the associated person responsible for the account, if any, and approved or accepted by a principal of the member, broker or dealer. requires all licensees to maintain possession of their transaction files for 4 years. The Books and Records Rule Amendments would apply to all of the approximately 7,217 active broker-dealers that are registered with the Commission.167, D. Total Annual Reporting and Recordkeeping Burden. (i) As to each associated person listing each purchase and sale of a security attributable, for compensation purposes, to that associated person. The Commission estimates that approximately 20%172 of the customers from whom information is requested will update their account record resulting in 4,700,000 updated account records each year (70,500,000 / 3 years x 20%). Section 23(a)(2) of the Exchange Act140 requires the Commission, in adopting Exchange Act rules, to consider the impact any such rule would have on competition and to not adopt a rule that would impose a burden on competition not necessary or appropriate in furthering the purposes of the Exchange Act. 1 and 3; Virginia, pp. 60 See, e.g., Comment Letters from Arkansas Securities Department, pp. Currently, brokerage firms must report cost basis and the type of capital gain (short-term or long-term) on Form 1099-B (or a substitute statement) for the sale of the following types of securities: . If you see a mistake, call your broker immediately. The Commission believes that broker-dealers presently maintain lists of principals or branch managers responsible for supervising each of their offices under applicable SRO rules, and that they also have lists of associated persons operating out of each office location. Based upon the comment letters and other communications, large broker-dealers are more automated and small broker-dealers have more manual processes. Some commenters sought clarification as to whether the amendment required a separate mailing of the customer account record information. Books and Records Rules Pertaining to Electronic Communications. Ohio indicated (in its Comment Letter, p. 3) that in one particular case Ohio investors lost over $60 million dollars. As described more fully below, the Commission estimates that large broker-dealers (broker-dealers having over 100,000 accounts) will, on average, incur startup costs and ongoing costs to purchase and maintain additional equipment and develop systems of $.31 per account and $.25 per account respectively. Paragraph (a)(21) of Rule 17a-3 requires a record listing, by name or title, all personnel at an office who, without delay, can explain the types of records the firm maintains at that office, and the information contained in those records. 149 See Comment Letter from NASAA, p. 4. Requests for the materials submitted to OMB by the Commission with regard to these collections of information should be in writing, refer to File No. Arbitration and mediation case participants and FINRA neutrals can view case information and submit documents through this Dispute Resolution Portal. Under this paragraph, every broker-dealer is also required to maintain copies of its Form BD and all amendments thereto. has the capacity to readily download stored records and indexes to any medium acceptable under SEA Rule 17a-4(f) as required by the SEC or SROs of which the broker-dealer is a member. Thus the Commission does not believe that the amendments to Rules 17a-3(a)(6) and 17a-3(a)(7) will cause any additional burden. The Books and Records section of the 2021 Report on FINRAs Risk Monitoring and Examination Activities (the Report) informs member firms compliance programs by providing annual insights from FINRAs ongoing regulatory operations, including (1) relevant regulatory obligations and related considerations, (2) exam findings and effective practices, and (3) additional resources. See 17 CFR.15c3-1(a)(2)(v). 36742 (Jan. 19, 1996) (in finding that an officer of a broker-dealer firm failed reasonably to supervise an independent contractor, the Commission found that the independent contractor was an "associated person" of the firm within the meaning of Section 3(a)(18) of the Exchange Act). New paragraph (f) of Rule 17a-3 requires firms to make and keep current, separately for each office, certain books and records that reflect the activities of the office.69 It should be noted that 75% of broker-dealers have reported that they have no branch locations.70 The definition of "office" may be broader and more inclusive than the definition of "branch," however.
