Two more broker-dealers – State Street Global Markets, LLC and Acorns Securities, LLC – agreed to settle disciplinary actions filed by the Financial Industry Regulatory Authority charging them with violations of recordkeeping rules of the Securities and Exchange Commission. In the action naming State Street, the firm agreed to pay a fine of US $1.5 million to resolve FINRA’s claim that, from November 4, 2011, through April 21, 2017, the firm failed to keep approximately 131.5 million electronic brokerage records of orders placed by certain of its institutional customers in a non-erasable and non-rewritable format known as “WORM” as required by SEC rule. According to FINRA, most of these records were of unexecuted orders. In addition, charged FINRA, State Street failed to store separately from the original duplicate copies over 245 million records of orders and up to approximately 52 million electronic communications, and to have an audit system to monitor the inputting of new records and changes to old record, also as required by SEC rule. (Click here to access the SEC’s requirement regarding acceptable electronic storage media at 17 CFR 240.17a-4(f).) Similarly, Acorns Securities, which acts as an introducing broker-dealer, consented to remit a fine of US $175,000 for likewise failing to retain electronic records in WORM format and not implementing a required audit system, as well as not advising their examining authority of their intent to use such media at least 90 days in advance, as currently required.
My View: Just two weeks ago, HSBC Securities (USA), Inc. agreed to pay a fine of US $1.5 million to settle FINRA charges that, from May 2003 through the present, it did not maintain order records related to approximately 12.36 million transactions in required WORM format, as well as for related recordkeeping violations. This followed FINRA’s assessment of a total of US $14.4 million in fines against 12 other firms for “significant deficiencies” in their retention of required books and records on electronic storage media at the end of 2016. These actions, which are based on an existing SEC requirement grounded in outdated technology, may be justified as a matter of law, but seem unwarranted as a matter of policy. Recently, the Commodity Futures Trading Commission approved a revised records retention rule that eliminated many of its existing antiquated recordkeeping requirements and aims to be “technology neutral” in order to accommodate future advances in recordkeeping technology. Among other things, the revised rule eliminates the CFTC requirement that electronic records be kept in WORM format. Instead, the CFTC’s revised rule is more principles-based and solely requires that all “regulatory records” be maintained in a way that “ensures the authenticity and reliability of such regulatory record” in accordance with applicable law and CFTC regulations. The CFTC’s new recordkeeping requirement is effective August 28. The SEC should quickly consider amending its current recordkeeping requirements to conform to the CFTC’s new amended rule.
