Statement on Updates to Electronic Recordkeeping Requirements for Broker-Dealers and Security-Based Swap Entities
Oct. 12, 2022
Recordkeeping is not an especially flashy topic. However, for regulators, a robust recordkeeping regime is fundamental to our ability to oversee our regulated entities. Without accurate and complete records, it is difficult or impossible to assess compliance with our rules.
Today’s amendments make common-sense updates to modernize the broker-dealer and security-based swap (“SBS”) entity recordkeeping regime, taking into account advances in technology over the last two decades.
The current framework requires broker-dealers to maintain and preserve electronic records exclusively in a write-once, read-many, or “WORM” format. This means that the records are non-rewriteable and non-erasable, which is intended to ensure the integrity of the records. The amendments we are voting on today would add flexibility by allowing these entities to use an alternative “audit trail” method to satisfy their electronic recordkeeping obligations. Instead of preserving each version of a record in a non-rewriteable and non-erasable format, entities would be permitted to use an electronic recordkeeping system that maintains an audit trail that permits the recreation of an original record if it is altered, over-written, or erased. The amendments would also make other common-sense updates to the recordkeeping regime, including with respect to the use of third-party recordkeeping services and the prompt production of records.
The comment file reflected broad support for the proposed amendments. Commenters also provided helpful feedback, which led to certain changes from the proposed approach. For example, the final amendments include a provision designed to accommodate cloud storage solutions, changes to the rule text designed to be more technology-neutral, and the removal of certain requirements that might be duplicative or redundant.
While the amendments provide significant additional flexibility, they are also designed to maintain the same level of protection for the authenticity and reliability of original records. Some commenters suggested that the SEC provide even greater flexibility by imposing only a high-level requirement for “appropriate systems and controls.” However, we must be able to actually test and assess the effectiveness of the system. Such a high-level approach simply would not provide us the ability to do our jobs effectively. As the release explains, we need to be able to identify specific outcomes that the electronic recordkeeping system must achieve in order to promote the authenticity and reliability of the records.
Winston Churchill is often quoted as saying “History will be kind to me, for I intend to write it.” His point, as I understand it, was that as the recorder of certain historical events, he would shape how future generations understood them, including his role. One problem: Winston Churchill probably did not actually say the words I attributed to him just now. At least, there is no reliable record of him doing so.
Going back to the records, we can see that he did say something similar during a meeting of Parliament, for which a transcript is available. But it is not the pithy statement so often attributed to him. This confusion perhaps underscores the point of the original quote: without a record of events, we risk misunderstanding them. And the quality of the records informs the accuracy and completeness of our understanding.
Today’s amendments are designed to make common-sense updates to our recordkeeping framework for SBS entities and broker-dealers, while continuing to protect the authenticity and reliability of original records. It accomplishes that goal thoughtfully, with what I believe is an appropriately tailored and balanced approach. Thank you to the staff of the Division of Trading and Markets, the Division of Economic and Risk Analysis, and the Office of the General Counsel, for your hard work on these amendments. I am pleased to support them.
 Electronic Recordkeeping Requirements for Broker-Dealers, Security-Based Swap Dealers, and Major Security-Based Swap Participants, Release No. 34-96034 (October 12, 2022) (the “Adopting Release”).
 See, e.g., Letter from John Trotti, NCC Group (Dec. 29, 2021); Letter from Ian J. Frimet, Senior Vice President, Associate General Counsel, LPL Financial (Jan. 3, 2022), Letter from William C. Anderson, Senior Vice President and Chief Compliance Officer, American Funds Distributors, Inc. (Dec. 31, 2021).
 Adopting Release at 4-10.
 See Petition 4-713 (Nov. 14, 2017) filed by the Securities Industry Financial Markets Association, Financial Services Roundtable, Futures Industry Association, International Swaps Derivatives Association, and Financial Services Institute.
 Adopting Release at 4-11.