SEC Compliance

SEC Compliance

What are compliance requirements for Brokers and Dealers under SEC?

The Securities and Exchange Commission (SEC) rules 17a-3 and 17a-4 specify recordkeeping requirements with respect to purchase and sale documents, customer records, associated person records, customer complaints, and certain other matters. In addition, they describe the types of records that broker-dealers must maintain and require broker-dealers to maintain or promptly produce certain records at each office to which those records relate. These are specifically designed to assist securities regulators when conducting sales practice examinations of broker-dealers, particularly examinations of local offices. It includes asset and liability ledgers, income ledgers, customer account ledgers, securities records, order tickets, trade confirmations, trial balance sheets, trade blotters, and various employment related documents.

The SEC 17a-4 rule states that broker-dealers must retain specific records and account transactions in a certain manner for a specific period of time. This data must be preserved on permanent, non-rewritable form of media. It should be thoroughly indexed and searched and readily retrievable. Brokers and dealers are also required to write down and enforce retention policies. The Commission, self-regulatory organizations ("SROs"), and State Securities Regulators may conduct effective examinations of broker-dealers from time to time for compliance.

Who needs to comply with SEC?

SEC compliance is for financial services firms. It specifies the minimum requirements with respect to the records that broker-dealers must make, and how long those records and other documents relating to a broker-dealer's business must be kept.


What are the functionalities required to effectively maintain SEC compliance?

  • A Secure Database: Documents must be encrypted and each individual user sign into the software with individual logins and passwords to access these documents.
  • Automated Retention: The SEC requires that all account, investment purchase, and insurance applications, be maintained at least through the duration of the purchase period or account life.
  • Role Based Security: The ability to lock down the documents to users based on job function and individual need-to-know basis is critical to ensuring that private information remains private, even from a rogue employee.
  • Audit Trails: Audit trails should be undeletable and unalterable.
  • Backup: If your institution experiences a system failure, inadequate backup can put you in violation of SEC rules.


What is a document management system and how can it help with SEC compliance?

A document management system stores, retrieves, manages and tracks electronic documents and electronic images of scanned paper-based information, tracks document lifecycle and audit trail and ensures timely approval of documents via automated document workflows. A document management software ultimately controls and organizes documents throughout an organization.

With the increased use of technology, many financial institutions are turning to paperless software as a solution for maintaining regulatory compliance standards with internal documents. If you choose a wrong document management solution, the non-compliance costs can be catastrophic.

Let’s find out in detail how LuitBiz DMS can help you achieve SEC compliance through its document control process by asking you the following questions:

  1. Do you have controlled access to all purchase and sale documents, customer records, associated person records, customer complaints, etc.?
  2. Do you receive real time alerts whenever an unauthorized person tries to access your documents?
  3. Are you able to store old records centrally for easy retrieval and reference?
  4. Do you know who has performed what operation on your documents and when?
  5. Do you have a version control system in place that ensures that you are working with the most recent version of the document?
  6. Are you easily at risk of a security breach?

If your answer to the above questions is a "NO", you definitely need a document management system to manage your business documents and ensure SEC Compliance. If you do not manage your documents now, you will end up in the risk of paying huge fines for non-compliance.

LuitBiz DMS can help comply with SEC rules 17a-3 and 17a-4 that are pertain to document and records management. Let’s take a look at some of the key elements of the SEC rules 17a-3 and 17a-4 regulations and how LuitBiz DMS addresses them:

Rule What it means How LuitBiz DMS helps
§ 17a-3
Records Retention
Every member, broker and dealer subject to Rule 17a-3 shall preserve for a period of not less than six years, the first two years in an easily accessible place, all records required to be made pursuant to paragraphs Rule 17a3(a)(1), (a)(2), (a)(3), (a)(5), (a)(21), (a)(22), and analogous records created pursuant to Rule 17a-3(f). All documents and records are "easily accessible" for not only two years, but for the duration of their existence in LuitBiz DMS unless document deletion periods are specified by LuitBiz Admin.
§ 17a-4(f)(2)(ii)(A)
Record Protection
Preserve the records exclusively in a nonrewriteable, non-erasable format. In LuitBiz DMS documents cannot be erased unless specified by the admin. The group leaders can lock the version control mechanism of documents making them nonrewriteable.
§ 17a4(f)(2)(ii)(D)
Record Retrieval
Have the capacity to readily download indexes and records preserved on the electronic storage media to any medium acceptable under this paragraph (f) as required by the Commission or the self regulatory organizations of which the member, broker, or dealer is a member. All documents and records can be easily retrieved and downloaded in LuitBiz DMS by persons with the right privileges to do so.
§ 17a-4(f)(3)(iv)(A)
Document Profiling
Organize and index accurately all information maintained on in storage media. In LuitBiz DMS documents can be searched based on meta data like key words, description, Boolean operators, creation dates, etc. Additionally, group leaders can define document tagging templates that can be used by users to index documents and retrieve them easily. Document OCR facility of LuitBiz DMS allows users to search through scanned images.
§ 17a - d(7)
Version Control
Track different document versions for each change or addition. The built-in version control mechanism of LuitBiz DMS allows users to store and retrieve different versions of their documents.
§ 240.17a-4
Security & Data Backup
It is not only important to store all the data on a medium where it can’t be modified or deleted but also protect them from theft and natural calamities. LuitBiz DMS backs up all files and audit trails automatically for easy retrieval.
§ 240.17 a-3 & a-4
Audit Trail
The member, broker, or dealer must have in place an audit system providing for accountability regarding inputting of records required to be maintained and preserved. LuitBiz DMS maintains complete audit trail of documents of who has done what on the document and when.
§ 17a-3(a)(17)
Customer Complaint Management
Broker/dealers should maintain files of written materials relating to customer complaints. LuitBiz DMS allows the admin user to maintain nonconformity logs and the corrected action taken ensuring conformity with SEC rules 17a-3 and 17a-4 regulations.