As a broker-dealer, you know the extensive regulations set by the Securities and Exchange Commission (SEC). One key rule, SEC 17a4, mandates that broker-dealers retain specific records and communications for designated periods, ensuring proper documentation and transparency. But did you know that adhering to SEC 17a4 compliance can not only keep you in regulatory good standing but also enhance the efficiency and accuracy of your broker dealer audit?
In this post, we’ll discuss the SEC rule, what it means for you as a broker-dealer firm, and how SEC 17a4 compliance can improve your future audits. First, let’s define the rule.
What is SEC 17a4?
SEC 17a4 is just one part of the many rules and regulations set forth by the US Securities Exchange Act of 1934. This rule, amended in 2022 and officially in effect in 2023, requires broker-dealers to retain and index electronic and paper correspondence, and it aims to protect investors from potential fraud.
What does this rule mean for your broker-dealer firm?
Electronic correspondence, like emails, must be digitally stored and immediately available for review for two years. After those two years, financial firms must retain this information for non-immediate access for at least six more years.
It requires firms to have an electronic filing system and duplicate off-site records of correspondence. Depending on the document type, you might need to store those records for three to six years.
How Does SEC 17a4 Compliance Improve Your Broker Dealer Audit?
Staying on top of SEC 17a4 compliance can benefit your firm, especially when it comes time for your broker-dealer audit. During a broker dealer audit, you’ll be required to provide documentation to adherence with regulatory requirements including, but not limited to:
- Financial statements
- Net capital
- Customer protection in accordance with SEC 15c3-3
- Internal controls
- Anti-money laundering compliance
- Custody of client asset
Each of these requirements generally generates some form of correspondence, whether that is between your clients or between your firm’s managing partners. So, it’s easy to see why meticulous record-keeping to satisfy SEC 17a4 compliance requirements can help you stay prepared for your broker-dealer audits.
However, staying ready for an audit isn’t the only reason you should maintain SEC 17a4 compliance. Failing to stay on track with your record-keeping requirements can have some hefty penalties. Your firm may be subjected to large fines or, worse, jail time.
Maintain SEC 17a4 Compliance with Assurance Dimensions
If you don’t have a plan to maintain compliance, now is the time to formulate one. Remember, SEC 17a4 encompasses meticulous record-keeping, so your firm will need a way to digitally store unerasable records, and you’ll need an off-site storage facility for paper copies or correspondence and transactions.
Keeping your firm’s records up to date and available will help smooth out any potential snags during your audit and keep your firm from being subjected to penalties and fines.
When you’re considering high-quality broker dealer auditors, reach out to a team with expertise you can trust. At Assurance Dimensions, we have over 75 years of industry experience. We offer remote consulting services, making it even more accessible and secure to get the help you need for your firm. Contact us today to learn more.