Post-registration obligations

Initial registration of a broker-dealer (or any other person) is just the beginning of regulatory compliance. To maintain their effective registration status, broker-dealers have a long list of obligations they must fulfill. There are multiple layers to these rules, and this is the first layer mentioned in the Uniform Securities Act (USA):

”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”

Broker-dealers must consistently maintain a paper trail for nearly every action they take. Records relating to customer accounts (e.g. account applications, customer information), communications with the public (correspondence, memoranda), and the firm’s internal operations (e.g. transaction logs, blotters) must be kept on file for specified periods of time. It’s important records be preserved in case a liability with a customer or other issue arises. The state administrator has the right to request and inspect any of these records if jurisdiction exists.

Broker-dealer records are subject to a 3-year retention period, with the most recent 2 years of records being easily accessible. If the administrator asks for records that were created within the previous 2 years, those records must be produced quickly (usually within 24 business hours). Broker-dealers can take longer to provide older records without issue.

The state administrators require these documents 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."

Financial firms almost universally maintain their records digitally in the cloud these days. Regardless, you must be aware of the option to maintain paper records and other, older forms of document retention. In the past, broker-dealers utilized micrographic means of keeping records, including microfilm and microfiche.

The same recordkeeping rule goes on further to say broker-dealers must:

“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 preservation of the original record, a duplicate copy of the record on any medium allowed by this section.”

In basic terms, broker-dealers must be able to provide the state administrator access to their records upon request, and be willing to provide a copy of those records.

One last important section of NASAA’s recordkeeping rules requires 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 - the records must be properly maintained and protected from being destroyed in any way. Additionally, those records should be sheltered from unauthorized access. And last, any copies of records should not be altered or manipulated.