The Securities and Exchange Commission is being urged by an industry trade group to modernize some of its rules for broker-dealers and registered investment advisors, Investment News reports.
The organization, the Securities Industry and Financial Markets Association (SIFMA), expressed its views in a recent open letter to SEC Chairman Paul Atkins. SIFMA said the SEC’s rules involving communications and recordkeeping are “outdated” and “overly broad” in light of the modern technology involved in communications channels.
Among other proposed changes, SIFMA called on the SEC to narrow the types of communications that need to be retained and implement a standardized retention period of three years for all registrants.
‘The existing communications rules have created burdensome, costly, and unnecessary roadblocks for firms in effectively managing their relationships with clients through seamless and modern communication,’ the letter states. ‘As a result, firms may be competitively disadvantaged against other types of financial institutions that do not have restrictive communications retention requirements.’
The group notes that the SEC’s recordkeeping rules were drafted decades ago when communications were primarily on paper and have not evolved alongside technology. As a result, the rules “create unmanageable compliance burdens and costs without corresponding investor protection benefits,” according to the letter.
SIFMA is urging the SEC to refocus its rules on the original intent of recordkeeping requirements: maintaining a clear and auditable record of investment-related client interactions. The association proposes narrowing the obligation to “client-facing business communications substantively related to investment or securities advice or transactions.”
The group contends that this reform would exclude communications that have no regulatory or investor-protection value, including categories such as emojis, administrative notes, unsolicited inbound messages, and AI-generated meeting transcripts.
The push by SIFMA follows a number of enforcement actions carried out by the SEC and FINRA in recent years penalizing violations by firms over retention of electronic communications.
Recently FINRA fined robo-advisory and online brokerage firm Ally Invest $850,000 for failing to preserve over 22 million business-related electronic communications over a six-year period due to technical errors.
Last year, the SEC announced charges against 26 broker-dealers, investment advisers, and dually-registered broker-dealers and investment advisers. They were accused of widespread and longstanding failures by the firms and their personnel to maintain and preserve electronic communications. The firms had to pay a combined $392.75 million in civil penalties for their violations
SIFMA’s letter calls upon the SEC to “narrow the retention obligation to client-facing business communications substantively related to investment or securities advice or transactions, consistent with the original intent of the rules.”
SIFMA is urging the SEC to remove the requirement that third-party service providers, such as cloud storage vendors, file undertakings with the commission to provide access to records. The group says that this rule “has become a major hurdle for many broker-dealers seeking to use cloud service providers,” and notes that the SEC has “rarely – if ever – invoked this provision and used a third-party provider to access a broker-dealer’s documents.”
Currently, broker-dealers must retain communications for three years, while RIAs are required to keep them for five years. SIFMA proposes a uniform three-year retention period for all registrants, saying that “no rationale exists supporting the retention of investment adviser communications for a longer period than for broker-dealers.”
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