Today we are focusing on the WORM requirement and the Third Party Notification letter. We’ve attached a link to a video clip that clarifies the confusion surrounding these stipulations http://www.youtube.com/watch?v=hb1lwPijJK8. Often times the SEC regulations are vague and are wide open to interpretation. After having tried to contact them and ask some basic questions, we were able to find a link http://www.finra.org/Industry/Regulation/Guidance/InterpretiveLetters/p005323 that explains what they intended for the wording to say. Keep in mind that their explanation is pretty wordy in itself.

If you need more information about how you can satisfy the intent of 17a-4 then please call our U.S. based customer service line at 1 877 310-2884 and one of our Backup Specialists can guide you through these regulations.

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Today’s blog topic will focus on FINRA’s record retention rules. Basically, FINRA and NASD members must comply with the guidelines of Rule 17a-4 and shall preserve for a period of not less than 6 years, the first 2 years in an easily accessible place, all records required to be made pursuant to Rule 17a-3(a) (1), (2), (3), and (5). The Securities Lawyer’s Deskbook published by the University of Cinncinnati College of Law outlines this rule pretty clearly. If you click on the last link , the document that appears has the retention requirement on the first line. Most brokers know this rule, however, the ambiguity comes from words like “an easily accessible place”.

We went so far as to call the S.E.C. to get their interpretation of what “an easily accessible place” really means. Well, if you’ve called the S.E.C. before, then you know that they won’t get really specific about definitions because they seem to like to leave everything up for interpretation.

So here’s our interpretation of what an “easily accessible place” is…

1. Your office seems pretty accessible if you’re storing hard copies or documents on an external hard drive.

2. Storage facilities seem easy to access. The issues becomes how quickly can you get there I guess.

3. Online backup seems pretty accessible because you can do it from anywhere, which can’t be said for #1 or #2.

4. Your basement seems easily accessible.

5. The trunk of your car is accessible (believe me, we’ve heard this from customers that they used the trunk of their car to store their digital assets).

I guess you can store your files anywhere except Mount Everest or North Korea. Those are two places that seem pretty inaccessible to me. Therefore, as long as you can satisfy the intent of the regulations and promptly produce records when requested by any SRO, you should be in good shape using anyone of the 3 suggestions above.

Now, because we are an online backup company, we have to bestow the virtues of our preferred solution…lock up and secure your files online. This way, they are out of your way and stats show that 80% of most stored files aren’t even referenced during their life cycle so why store them in your office. If you were ever audited, you would be able to promptly produce records so you would satisfy the regulations and safe yourself money by better using your office space and turn what normally incurs a capital expense and turn it into an operating expense.

If you prefer to discuss this option some more, please feel free to call us at 1 877 310-2884 and one of our Backup Specialists will be pleased to continue this discussion.

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As we conclude 2010, FINRA and the SEC will be introducing a few new requirements in 2011. We’ve blogged about the new encryption rule that FINRA mandates effective December 29th, 2010, but brokers, dealers and members such keep in mind that throughout the official regulations the retention guidelines are referenced several times.

In effect, important records need to be maintained for seven (7) years or longer if litigation is involved (add two (2) additional years). Mind you, if you read the regulations carefully, they suggest to keep files forever as a best practice. We’re sure if some companies keep paper copies of records then they wouldn’t want to follow this policy, but imagine if your office was paperless. Adhering to a best practice becomes easy. Going paperless is probably the bigger mountain to overcome. We offer document scanning services for those businesses who are looking to be more green in the coming years. Digitizing records is not an overnight project. In fact, it takes a little time and a strategic plan. We’ve worked with businesses who wanted to start out digital-only, we’ve seen companies convert before there was too much paper and we’ve seen large legal firms convert millions of pages to easily referenced digital copies.

Since most files are born-digital these days, we think there is some virtue in going paperless because now businesses can implement policies that wouldn’t have been considered several years ago. Not only are companies now able to act more intelligently but they can be socially responsible as well and we’ve found that one small step in the right direction is better than standing still.

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