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Regulation and Compliance > Federal Regulation > SEC

SEC Votes to Modernize How BDs Can Preserve Electronic Records

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The Securities and Exchange Commission on Wednesday voted to adopt amendments that it said will modernize how broker-dealers preserve electronic records.

The changes also cover the prompt production of records and third-party recordkeeping service requirements that are applicable to BDs, security-based swap dealers and major security-based swap participants, the SEC said.

The amendments are being made in light of the technological changes that have been made over the past two decades and to make the rule adaptable to new technologies in electronic recordkeeping, according to the SEC.

The amendments will also facilitate examinations of BDs, SBSDs and MSBSPs, the SEC said.

The SEC’s BD electronic recordkeeping rule now requires firms to preserve electronic records exclusively in a non-rewriteable, non-erasable format, known as the write once, read many format.

The amendments will add an “audit-trail alternative under which electronic records can be preserved in a manner that permits the recreation of an original record if it is altered, over-written, or erased,” according to the SEC.

The audit-trail alternative is intended to provide BDs with more flexibility in how they configure their electronic recordkeeping systems so they will more closely align with current electronic recordkeeping practices, while also “protecting the authenticity and reliability of original records,” the SEC explained in a news release.

The SEC amendments apply the same requirements to nonbank SBSDs and MSBSPs.

To facilitate examinations and make them more efficient, the amendments also require BDs and all types of SBSDs and MSBSPs to produce electronic records to securities regulators in a “reasonably usable electronic format,” the SEC said.

The adopting release will be published on and in the Federal Register, and the final amendments will become effective 60 days after publication in the Federal Register, the SEC said.

The compliance dates for the new requirements will be six months after publication in the Federal Register in the case of BDs and 12 months after publication in the Federal Register in the case of SBSDs and MSBSPs.

“I am pleased to support these rule amendments because they will bring the Commission’s electronic recordkeeping requirements for intermediaries such as broker-dealers and security-based swap dealers in line with technological innovation,” according to SEC Chair Gary Gensler.

“Since the 1930s, recordkeeping obligations have been vital to maintain market integrity and the SEC’s work as the cop on the beat,” he said in a statement. “Today’s rule amendments will facilitate the SEC’s ability to examine and inspect records consistent with modern technology. This will enhance the Commission’s ability to preserve market integrity and protect investors.”

Melissa MacGregor, SIFMA managing director and associate general counsel, applauded the SEC’s move.

The amendments will “bring electronic recordkeeping requirements into the modern era and …  better allow the use of current technology standards while allowing for the inevitable future,” she said in a statement. “Updating these antiquated technology-specific rules will allow securities firms’ quicker adoption of communication technologies and other applications which will allow firms to provide a better investor experience.”

The SEC’s new rule “provides greater flexibility for broker-dealer storage of electronic records and modernizes the electronic recordkeeping requirements for broker-dealers by permitting an ‘audit-trail’ alternative to the more prescriptive write-once-ready-many or WORM recordkeeping requirements,” according to Ben Marzouk, partner at Eversheds Sutherland.

“With this rule, the SEC shifts to a more business-friendly approach, which would better align with the SEC’s recordkeeping rules with current technologies and broker-dealer industry practices,” Marzouk added.

(Photo: Diego M. Radzinschi/ALM)


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