Post-registration obligations

Initial registration of a broker-dealer (or any other person) is only the starting point for regulatory compliance. To keep a registration effective, broker-dealers must meet ongoing obligations. One of the first requirements you’ll see in the Uniform Securities Act (USA) is recordkeeping:

“Every registered broker-dealer… shall make and keep such accounts, correspondence, memoranda, papers, books, and other records as the [Administrator] prescribes by rule or order”

In plain terms, broker-dealers must keep a reliable paper trail for nearly everything they do. That includes records related to:

• Customer accounts (e.g., account applications, customer information)
• Communications with the public (e.g., correspondence, memoranda)
• Internal firm operations (e.g., transaction logs, blotters)

These records matter because they may be needed later if a customer dispute, regulatory inquiry, or other liability issue comes up. If jurisdiction exists, the state administrator may request and inspect any required records.

Broker-dealer records are subject to a 3-year retention period, and the most recent 2 years must be kept in an easily accessible place. If the administrator requests records created within the last 2 years, the broker-dealer must produce them quickly (usually within 24 business hours). Older records can typically be provided on a longer timeline.

Acceptable record formats

State administrators also require records to be maintained in specific forms. Here’s the exact language from the applicable North American Securities Administrators Association (NASAA) recordkeeping rule:

"The records required to be maintained and preserved may be immediately produced or reproduced, and maintained and preserved for the required time [on]:

• Paper or hard copy form, as those records are kept in their original form; or
• Micrographic media, including microfilm, microfiche, or any similar medium
• Electronic storage media, including any digital storage medium or system that meets the terms of this section."

Most firms now store records digitally (often in cloud-based systems). Even so, you’ll want to remember that paper records and older storage methods are still permitted under the rule. Historically, broker-dealers often used micrographic means of record retention, including microfilm and microfiche.

Indexing, production, and backups

The same recordkeeping rule also requires broker-dealers to:

"Arrange and index the records in a way that permits easy location, access, and retrieval of any particular record;

Provide promptly any of the following that the [Administrator] (by its examiners or other representatives) may request:

• A legible, true, and complete copy of the record in the medium and format in which it is stored;
• A legible, true, and complete printout of the record; and
• Means to access, view, and print the records; and

Separately store, for the time required for the preservation of the original record, a duplicate copy of the record on any medium allowed by this section."

In basic terms, the broker-dealer must be able to locate records quickly, give the administrator access upon request, and provide copies in usable form. The firm must also keep a separate duplicate copy (a backup) for the required retention period.

Safeguarding records

NASAA’s recordkeeping rules also require the broker-dealer to establish and maintain procedures:

"To maintain and preserve the records, so as to reasonably safeguard them from loss, alteration, or destruction,

To limit access to the records to properly authorized personnel and the [Administrator] (including its examiners and other representatives),

To reasonably ensure that any reproduction of a non-electronic original record on electronic storage media is complete, true, and legible when retrieved."

Basically:

• Records must be protected from loss, alteration, or destruction.
• Access must be limited to authorized personnel (and the administrator when appropriate).
• If a paper (non-electronic) record is converted into electronic form, the electronic version must be complete, accurate, and readable.