On October 12, 2022, the SEC adopted amendments to modernize certain requirements for broker-dealers, security-based swap dealers (SBSDs) and major security-based swap participants (MSBSPs) regarding electronic recordkeeping, production of records and third-party recordkeeping services. The amendments were also designed to facilitate examinations of these entities by federal and state regulators.

The amendments impact the electronic recordkeeping requirements of Rule 17a-4 (applicable to broker-dealers, including those also registered as SBSDs and MSBSPs) and Rule 18a-6 (applicable to SBSDs and MSBSPs that are not also registered as broker-dealers (i.e., SBS entities)) under the Securities Exchange Act of 1934. As amended, the rules will require broker-dealers and nonbank SBS entities to use an electronic recordkeeping system that keeps records either in a non -rewritable, non-erasable format (often referred to as a “write once, read many” or “WORM” format), as currently required by Rule 17a-4, or in a fashion that complies with an “audit-trail alternative” under which a firm’s recordkeeping system would preserve electronic records in a manner that permits recreation of an original record in the event it is altered, overwritten or erased.

Additional updates include the following:

• As amended, the electronic recordkeeping rules will require broker-dealers and SBS entities to produce electronic records in a reasonably usable electronic format that allows regulators to search and sort information.
• At present, Rule 17a-4 requires that a designated third party with access to the electronic storage media that a broker-dealer uses for record preservation make certain undertakings to furnish and provide access to information so stored to the SEC and state regulators upon request. As amended, the electronic recordkeeping rules will allow a broker-dealer or an SBS entity to designate either an executive officer or an unaffiliated third party to make the required undertakings.
• Amended Rule 17a-4 eliminates the requirement that a broker-dealer notify its designated examining authority (i.e., FINRA) before creating an electronic recordkeeping system.

The amendments will become effective 60 days after publication in the Federal Register. Compliance with the amendments will be required (1) six months after publication in the Federal Register for broker-dealers and (2) twelve months after publication in the Federal Register for SBSDs and MSBSPs.

The SEC’s adopting release is available here, a related fact sheet is available here, and a related press release is available here.