WORM set to turn for record keeping

WORM set to turn for record keeping

The SEC has proposed an update to its outdated recordkeeping requirements which will be a welcome change for broker-dealers.

The Securities and Exchange Commission proposed the update to SEC Rule 17a-4 in November. The Rule currently requires broker-dealers to retain records in paper format or electronically. To date, records that are retained in electronic format must be retained in “write-once, read-many” or “WORM” format. The “WORM” storage requirement, first implemented in 1997, is not the standard in within the electronic data industry. It has led to challenges in compliance specifically with dynamic records, at times requiring broker-dealers to create more than two record systems, one for day-to-day business activities and one solely for WORM compliance retention purposes.

The rule proposal outlined by the SEC would allow for electronic records to be retained using an audit-trail methodology instead of the current requirement within WORM format. The audit-trail alternative would allow for the recreation of an original record if it was changes, overwritten, or previously deleted. The system would be required to preserve records for the retention period as required, which is time-stamped. The audit trail would additionally need to include a) a record of all changes/deletions of records, b) the date and time of entries and actions that create, and or change a record, c) record of the individual who created or modified a record, and d) information needed to maintain an audit-trail distinctly which maintains security, signatures, and data ensuring the authenticity of the record. Lastly, the rule update would amend the existing records standard, applicable to those broker-dealers that retain certain records electronically exclusively.  These broker-dealers may designate a third party to provide emergency access to records upon request by the SEC or FINRA.

Announcing the proposal, SEC Chair Gary Gensler said “A lot has changed with respect to database management, among other technologies, in the last 24 years. This proposal would bring the Commission’s rule in line with technological innovation.”

How Bovill can help

Bovill regularly performs 3120 reviews for FINRA approved broker-dealers, as required by FINRA. Our team of consultants can identify those weaknesses latent within your broker-dealer, and thereby form suggestions for solutions on how to better improve your compliance program prior to your upcoming FINRA examination. We can also thoroughly review your records retention policy and implement solutions to adapt your current records retention processes for consistency with the most current rule changes to be implemented in the near future.

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