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SEC Confirms Record Retention Requirements With Third-Party Recordkeeping Services

On April 12, the staff of the Securities and Exchange Commission issued a letter in response to an inquiry from staff of the Financial Industry Regulatory Authority, concerning broker-dealers’ recordkeeping obligations under Section 17(a) of the Securities Exchange Act of 1934 and Rule 17a-4 thereunder.

Paragraph (i) of Rule 17a-4 imposes various requirements on broker-dealers that use third-party recordkeeping services to prepare or maintain records that the broker-dealer is required to preserve under Rules 17a-3 or 17a-4. The requirements are designed to assure that regulators have access to the broker-dealer’s records even where, for example, the third-party recordkeeping service refuses to surrender the records due to non-payment of fees. FINRA staff raised concerns regarding broker-dealers entering into contracts with such third-party recordkeeping services that include provisions permitting the service provider to delete or discard the broker-dealer’s records due to non-payment or under other circumstances.

In response, the SEC staff advised that such contractual provisions are inconsistent with the record retention requirements of Rule 17a-4 and with the service provider provisions in paragraph (i) of the Rule. Moreover, the staff indicated that the deletion of required records by a third-party service provider, exercising its rights under such a contractual provision, would constitute a primary violation of the Rule by the broker-dealer and could subject the service provider to secondary liability for aiding and abetting the violation.

The SEC staff’s letter is available here.

©2019 Katten Muchin Rosenman LLP


About this Author

Michael T. Foley, Katten, Lawyer, Finance, FINRA, Chicago
Special Counsel

Michael Foley represents broker-dealers, investment advisers and other financial services industry participants with respect to a broad spectrum of legal and regulatory matters arising under the federal securities laws.

Michael has nearly 20 years of experience in private practice and in-house at both a large, full-service broker-dealer and at an online discount broker-dealer, advising broker-dealers and other financial institutions regarding compliance with the federal securities and commodities laws, and with the regulations of the US Securities and Exchange...

Janet M. Angstadt, Securities, Financial Services, Chicago, Lawyer, Katten Law FIrm

Janet M. Angstadt is the head of Katten's Chicago Financial Services practice. She focuses her practice on broker-dealer and exchange compliance issues and advises companies on matters regarding compliance with the regulations of the US Securities and Exchange Commission (SEC) and self-regulatory organizations (SROs).

Janet represents clients in a wide range of legal and regulatory matters, including mergers and acquisitions, SRO investigations, compliance issues related to registrations, sales practice, short sales, Regulation NMS, market-making and options and equities order handling. She advises on alternative trading systems, including dark pools and electronic communication networks, policies and procedures for trading systems development and testing and exchange-traded funds (ETFs).