The SEC recently warned service providers to broker-dealers that they could not delete or discard required records in response to non-payment of fees. The SEC explained that it has experienced difficulty in accessing required records in situations where a broker-dealer had financial problems. The staff opined that contractual provisions that permitted the service providers to delete or discard records because of the non-payment of fees would violate Rule 17a-4. Moreover, the loss of records could subject the service provider to secondary liability for causing or aiding and abetting the broker-dealer’s primary violation.
Firms such as banks and consultants should take notice that the SEC and/or FINRA will take action for failure to preserve required records. Consult your compli-pro to ascertain the records required by Rules 17a-3 and 17a-4.