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 obligations listed 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 practice, this means broker-dealers must maintain a paper trail for nearly everything they do. Records related to customer accounts (for example, account applications and customer information), communications with the public (correspondence and memoranda), and the firm’s internal operations (for example, transaction logs and blotters) must be kept for specified periods.

These records matter because they may be needed if a customer dispute, regulatory inquiry, or other liability issue arises. If [jurisdiction] exists, the state administrator can request and inspect these 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.

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 using cloud-based systems). Still, you’ll want to recognize that paper records and older storage methods are permitted. Historically, broker-dealers used micrographic means of recordkeeping, including microfilm and microfiche.

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

In plain terms, records must be organized so they can be found quickly, and the broker-dealer must be able to give the administrator access and provide copies in usable form.

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."

In other words:

• Records must be protected from loss, alteration, or destruction.
• Access must be limited to authorized personnel (and the administrator when appropriate).
• Copies must be complete, accurate, and readable, without being altered or manipulated.