What Does SEC Rule 17-4 Mean for Small FINRA Firms?
Although SEC rule 17a-4 is the de facto regulation used by FINRA, it has special significance for small firms such as Broker-dealers and registered investment advisors. For example, small firms don’t have the IT budgets of large firms so they need to outsource the archiving and supervision of their electronic records to a designated third party. Therefore, to properly achieve 17a-4, they have to take a few extras steps to make sure regulators are happy:
- Firm must choose a 3rd party storage provider that can remotely archive books and records, emails and other systems data for disaster recovery
- Firms must ensure the 3rd party provider they choose to archive their electronic records for rule 17a-4 has the tools to properly supervise archived data. Ideally they will be given a secure web interface that compliance and other key people can use to access data in the event of an audit or for regular compliance supervision
- Lastly, the third party storage vendor that is archiving the data for 17a-4 needs to act as the designated third party provider (D3P). Since they have the data, they need to be able to reproduce it, in its original format if requested by FINRA.