SEC amend recordkeeping rules after fining 15 Wall Street broker-dealers $1.1 billion

Rick Steves

The audit-trail alternative is designed to provide broker-dealers with greater flexibility in configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices while also protecting the authenticity and reliability of original records.

The Securities and Exchange Commission has amended the rules regarding electronic recordkeeping, prompt production of records, and third-party recordkeeping service requirements applicable to broker-dealers, security-based swap dealers (SBSDs), and major security-based swap participants (MSBSPs).

The SEC voted on the amendments in an effort to modernize recordkeeping requirements as much has changed in the last two decades, namely the technology.

The new rules are adaptable to new technologies in electronic recordkeeping and facilitate examinations of broker-dealers, SBSDs, and MSBSPs.

Amendments provide greater flexibility for broker-dealers

SEC Chair Gary Gensler, said: “I am pleased to support these rule amendments because they will bring the Commission’s electronic recordkeeping requirements for intermediaries such as broker-dealers and security-based swap dealers in line with technological innovation. Since the 1930s, recordkeeping obligations have been vital to maintain market integrity and the SEC’s work as the cop on the beat. Today’s rule amendments will facilitate the SEC’s ability to examine and inspect records consistent with modern technology. This will enhance the Commission’s ability to preserve market integrity and protect investors.”

The SEC’s broker-dealer electronic recordkeeping rule currently requires firms to preserve electronic records exclusively in a non-rewriteable, non-erasable format, known as the write once, read many format.

The amendments add an audit-trail alternative under which electronic records can be preserved in a manner that permits the recreation of an original record if it is altered, over-written, or erased.

The audit-trail alternative is designed to provide broker-dealers with greater flexibility in configuring their electronic recordkeeping systems so they more closely align with current electronic recordkeeping practices while also protecting the authenticity and reliability of original records. The amendments apply the same requirements to nonbank SBSDs and MSBSPs.

The amendments also require broker-dealers and all types of SBSDs and MSBSPs to produce electronic records to securities regulators in a reasonably usable electronic format.

The final amendments will become effective 60 days after publication in the Federal Register. The compliance dates for the new requirements will be six months after publication in the Federal Register in the case of broker-dealers and 12 months after publication in the Federal Register in the case of SBSDs and MSBSPs.

SEC fined 15 Wall Street broker-dealers $1.1 billion in September

In September, the SEC charged 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications.

The firms agreed to pay combined penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters.

  • The following eight firms (and five affiliates) have agreed to pay penalties of $125 million each:
    • Barclays Capital Inc.;
    • BofA Securities Inc. together with Merrill Lynch, Pierce, Fenner & Smith Inc.;
    • Citigroup Global Markets Inc.;
    • Credit Suisse Securities (USA) LLC;
    • Deutsche Bank Securities Inc. together with DWS Distributors Inc. and DWS Investment Management Americas, Inc.;
    • Goldman Sachs & Co. LLC;
    • Morgan Stanley & Co. LLC together with Morgan Stanley Smith Barney LLC; and
    • UBS Securities LLC together with UBS Financial Services Inc.
  • The following two firms have agreed to pay penalties of $50 million each:
    • Jefferies LLC; and
    • Nomura Securities International, Inc.
  • Cantor Fitzgerald & Co. has agreed to pay a $10 million penalty.

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