By: Editorial Staff, Date: February 27th, 2023
On January 3, 2023, the SEC adopted amendments to the Exchange Act Rule 17a-4(f) concerning electronic recordkeeping to consider technology-neutral concepts. This modification adds an audit-trail alternative to the “write once, read many” or “WORM” approach, requiring broker-dealers to use an electronic recordkeeping system that maintains and preserves electronic records while allowing the recreation of an original copy if it is updated or deleted.
This article presents a list of the significant changes and critical considerations in adapting to the new audit trail alternative based on the chart recently published by the Financial Industry Regulatory Authority (FINRA).
- Data Retention Format – While FINRA does not prohibit firms from using the “WORM” format for some records, the firms that will stay with “WORM” requirement are required to implement serialization of the original storage media and if possible, the duplicate units, and time-date the period of data retention.
- Data Download and Transfer – Firms should ensure that their record and transfer copies are readily downloadable in both electronic and human-readable formats.
- Verification – Recording process should include automatic data verification to ensure accuracy. It is called completeness under the new rule.
- Backup – To comply with the WORM requirements, broker-dealers should always keep duplicate copies of their original records. Firms must have another recordkeeping system or a backup.
- Senior Management Responsibility – If the firm fails to provide records to regulators, designated executive officers are permitted to take responsibility.
- Cloud Service Providers and Related “Undertaking” – Firms that use third-party recordkeeping services should ensure that their arrangements comply with new rules.
- Facilities – To ensure immediate production of electronic records and copies, firms must always have available examination facilities.
Interested in learning more? Join our webinar: Latest Updates on FINRA Arbitration Rules: Effective Litigation Strategies Explored
Upcoming Webcasts
Bolstering BSA/AML Compliance in 2023: Effective Risk Management Programs Explored
The need for banks and other financial institutions to design their Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance program is paramount to mitigate financing risks and, most importantly, ensure conformity with the heightening BSA/AML regulations. Adopting a risk-based approach that focuses on detection and mitigation measures from potential illicit financial transactions is at the core to avoid hefty fines and legal liabilities. Moreover, banks and financial institutions must keep themselves abreast with emerging regulatory developments to avoid pitfalls.