SEC Rule 204-2 require that firms make and keep required books and records for prescribed periods, and furnish copies of such records as necessary. Examples of such records include, but are not limited to electronic communication, advertisements, trade blotters, asset and liability ledgers, income ledgers, customer account ledgers, securities records, order tickets, trade confirmations, trial balances, and communications that relate to the firm’s business. Any records that are considered to be “original records” are required to be archived appropriately. Firms that elect to use electronic storage to maintain such records may only do so if they establish policies and procedures to:

  • Safeguard the records from loss, alteration, or destruction;
  • Limit access to the records to authorized personnel and regulators; and
  • Ensure that electronic copies of non-electronic originals are complete, true, and legible.

Firms are not required to use a specific system of electronic storage. When storing records in electronic format, a firm must be prepared to promptly provide, upon request by regulators, the following:

  • Legible, true, and complete copies of records in the format in which they are stored, and printouts of such records; and
  • A means to access, view, and print the records.

Prompt Delivery and Legibility

The SEC has indicated that “promptly” means within twenty-four hours. Thus, to ensure prompt delivery of records, firms should consider arranging and indexing records in a way that permits easy location, access, and retrieval. Additionally, since records must be legible when delivered to regulators, firms that convert paper documents to electronic records should ensure that their scanners function properly and render clear images of scanned documents. It is a best practice to retain the original of scanned documents and treat the electronic storage copies as backup files.

Use of a Third Party

With respect to any electronic communications (including emails and communications through social media), these are always a first consideration and most obvious. Investment advisers generally archive through a third-party email archiver, such as Smarsh or Global Relay. An important consideration is not only how the records are archived, but whether they can be searchable in order to supervise all such communications.

The SEC has indicated that firms may delegate certain record creation and retention responsibilities to third parties but warned that they cannot escape liability if the third party fails to carry out its responsibilities. Consequently, firms should monitor any third party relied upon for the creation or retention of records. If a firm is relying on a third party (e.g., custodian or broker-dealer) to maintain order memoranda, portfolio management records, or any other required records, the investment adviser should not terminate its relationship with the third party until it has verified that it has copies of all required records formerly retained by the third party.

MasterCompliance provides expert consulting, outsourcing, and implementation tools in planning and budgeting your firm’s compliance responsibilities. If there are any areas where you would like to explore additional assistance or services, please contact us.