SEC modernizes record-keeping requirements for certain registrants

On October 12, the Securities and Exchange Commission (SEC) voted to adopt a new electronic filing system terms for broker-dealers, broker-dealers in securities swaps (SBSD) and major participants in securities swaps (MSBSP) – enabling the use of new technologies, such as cloud storage, to meet obligations.

These new record keeping requirements, offers in November 2021 will amend Rules 17a-4 (dealers) and 18a-6 (for SBSDs and MSBSPs) of the Securities Exchange Act of 1934.

Under these amendments, brokers, SBSDs and MSBSPs will no longer be required to maintain electronic records in a non-rewritable, non-erasable, or read-once-write-many (WORM) format. Instead, the new amendments will add an audit trail alternative designed to provide broker-dealers, SBSDs and MSBSPs with “greater flexibility in configuring their electronic record systems” as they will allow the maintenance and preservation of records that allow recreation of the original. records that have been modified or deleted.

Importantly, these changes will give brokerages the ability to use modern technology like cloud storage as an alternative to more restrictive options like CDs and hard drives.

The amendments will also allow companies to designate a senior officer to access company records and provide them to regulators. This change provides brokers with greater flexibility compared to previous requirements, which required companies to hire third parties to take on this responsibility.

The SEC said the purpose of the amendments is to “modernize recordkeeping requirements in light of technological changes over the past two decades and to make the rule adaptable to new electronic recordkeeping technologies.” In addition, these new changes will likely significantly reduce compliance costs. As SEC Chairman Gary Gensler declared

”[F]Companies that already use audit trail technology for their day-to-day records can now use this technology to comply with this rule, rather than feeling obligated to keep separate, WORM-compliant records.

Brokers will have six months from the publication of the requirements in the Federal Register comply. SBSDs and MSBSPs will have 12 months from publication during which to comply. Members of the Troutman Pepper team are available to assist with compliance efforts, as well as all other SEC developments.

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