Smaller broker-dealers have a lot on their to-do lists, from managing securities for their accounts to overseeing securities and deals for their clients to maintaining broker-dealer compliance with rules and regulations. That’s why the Securities and Exchange Commission (SEC) enacted a 30-day extension policy to help ease the burden for smaller broker-dealers who undergo a FINRA annual audit.
In this post, we’ll discuss why broker-dealer firms may need an annual audit extension and when they should file for an extension.
When to File for an Extension
Broker-dealer firms are required to prove compliance with SEC rules and regulations by submitting annual FINRA annual audits. One rule broker-dealers need to comply with is the Net Capital Rule (15c3-1). This rule requires firms to show their net capital funds, or funds set aside to ensure their firm can continue to operate in the black.
Compliance with the Net Capital Rule (15c3-1) is essential, as it can help your firm qualify for an audit filing extension.
FINRA states that broker-dealers need to file their broker dealer audits no later than thirty days past the end of their fiscal year. However, if your firm is close to missing the deadline, don’t panic. Instead, file for an extension. Your firm is eligible to file for an extension if your firm:
- Complies with Net Capital Rule (15c3-1) at the end of the most recent fiscal year.
- Has total capital and allowable subordinated liabilities under $50 million.
- Is eligible to file exemption reports with your annual reports
- Provides written notice to FINRA and the Securities Investor Protection Corporation (SIPC) detailing your intent to use the extension no later than three business days before the deadline
- Files the annual audit electronically through the SEC’s EDGAR system
Your firm should file for an extension as soon as you’re sure you’ll miss the deadline.
How to Request an Extension
If your firm meets the eligibility requirements, you can request an extension. Here’s what you need to do to ensure your firm:
- Send written notification to FINRA and SIPC notifying them of your extension request. In this request, you should mention how many days of an extension your firm needs and your specific reasoning for requesting an extension.
- Prepare to submit your firm’s FINRA annual audit through the SEC’s EDGAR system as an electronic filing.
Common Challenges and Reasons for Extensions
As part of your written request, you’ll need to explain your reasonings for a filing extension. Some common reasons for an extension are:
- Delay in auditing: If your broker-dealer firm has complicated financials, your auditing firm might need a few extra days to compile the audit report. This can impact your filing submission and may require you to request a deadline extension.
- Unexpected disruptions to operations: The COVID-19 pandemic is an excellent example of how unexpected disruptions can impact your firm. Other disruptions that can qualify your firm for an extension include staff shortages or systems failures.
- Compliance and reporting: FINRA and the SIPC understand that ensuring compliance and accurate reporting takes time, especially if your broker-dealer firm has complex financial reports. Because of this, you’ll likely be granted a filing extension.
The sooner your firm can submit your file extension request, the better. Just be sure to submit it no later than three business days before your original deadline.
Why Assurance Dimensions?
At Assurance Dimensions, we understand the complexities of a FINRA annual audit. We also understand your firm doesn’t need extra disruptions impacting your day-to-day operations. That’s why we offer secure remote audit services. With remote auditing, you and your team can join us on a video call and securely share electronic documents to help us get started on your firm’s audit immediately.
The best part? We offer competitive pricing, meaning your audit will have no hidden or unexpected costs. Contact us today to learn more about working with our experienced broker dealer auditors.