Quiero saber acerca de...

lotter on DSK11XQN23PROD with PROPOSALS2

68310

Federal Register / Vol. 86, No. 228 / Wednesday, December 1, 2021 / Proposed Rules
all information necessary to access and locate records preserved by means of the electronic recordkeeping system.80
Paragraph f3vii of Rule 17a4
provides that, for a broker-dealer exclusively using electronic storage media for some or all of its record preservation, at least one third party, who has access to and the ability to download information from the brokerdealers electronic storage media to any acceptable medium under Rule 17a4, must file with the DEA for the brokerdealer certain undertakings. The required text of the undertakings are set forth in the rule. They require the third party to undertake: 1 To furnish promptly to the Commission, the broker-dealers SROs, and state securities regulators having jurisdiction over the broker-dealer collectively, the regulators, upon reasonable request, such information as is deemed necessary by the regulators to download information kept on the broker-dealers electronic storage media to any medium acceptable under Rule 17a4; and 2 to take reasonable steps to provide access to information contained on the brokerdealers electronic storage media, including, as appropriate, arrangements for the downloading of any record required to be maintained and preserved by the broker-dealer pursuant to Rules 17a3 and 17a4 in a format acceptable to the regulators. The rule further provides that these arrangements must provide specifically that in the event of a failure on the part of a broker-dealer to download the record into a readable format and after reasonable notice to the broker-dealer, upon being provided with the appropriate electronic storage medium, the third party will undertake to do so, as the regulators may request.
The Commission proposed similar requirements for Rule 18a6e.81 When adopting the rule, the Commission noted that commenters stated that the requirement was outdated in light of the changed technological environment and that providing a third party access to electronic recordkeeping systems and client information needlessly exposes firms to data leakage and cybersecurity threats. 82
The Commission stated that any change to the broker-dealer electronic storage provisions should be addressed in a separate regulatory initiative where the Commission intends to consider 80 See paragraph f3vi of Rule 17a4 and paragraph e3vi of Rule 18a6, as proposed to be amended. For the reasons discussed above, the proposed rule text does not refer to indexes.
81 See SBSD/MSBSP Recordkeeping Proposing Release, 79 FR at 25313.
82 See SBSD/MSBSP Recordkeeping Adopting Release, 84 FR at 68569.

VerDate Sep<11>2014

17:28 Nov 30, 2021

Jkt 256001

electronic storage media issues in a broader context, including with respect to other market participants.83 For these reasons, the Commission did not include these third-party access and undertakings requirements in Rule 18a 6e.
The Commission preliminarily believes it is appropriate to eliminate the third-party access and undertakings requirements for the reasons discussed above. The Commission also preliminarily believes that the access and undertakings requirements may continue to serve a useful purpose.
Electronic records may be held in a highly secure manner to address cybersecurity risks. For example, the records may be encrypted and access to them likely will require passwords and other forms of authentication. Therefore, producing them may require the cooperation of an individual who has the requisite knowledge to access the electronic recordkeeping system and retrieve the records stored on it. The access and undertakings requirements would be designed to provide a backup method for regulators to access records of a broker-dealer when the firm is either unable or unwilling to furnish records that the Commission and other securities regulators are entitled to examine pursuant to the Exchange Act and rules thereunder.84 For example, there may be situations, such as when a broker-dealer is failing and customer assets are at risk, when prompt access to the records is critical to protecting investors. In this case, relying on access and undertakings requirements may result in the records being produced more promptly than relying solely on 83 Id.
84 Paragraph i of Rule 17a4 has a similar undertaking requirement. See 17 CFR 240.17a4i.
In particular, it provides, in pertinent part, that if the records required to be maintained and preserved pursuant to the provisions of Rules 17a 3 and 17a4 are prepared or maintained by a thirdparty, the third party must file with the Commission a written undertaking in form acceptable to the Commission, signed by a duly authorized person. Id. The rule further provides that the undertaking must include the following provision: with respect to any books and records maintained or preserved on behalf of BD, the undersigned hereby undertakes to permit examination of such books and records at any time or from time to time during business hours by representatives or designees of the Securities and Exchange Commission, and to promptly furnish to said Commission or its designee true, correct, complete and current hard copy of any or all or any part of such books and records. Id. See also Recordkeeping by Brokers and Dealers, Exchange Act Release No. 13962 Sept. 15, 1977, 42 FR
47551, 47552 Sept. 21, 1977 Paragraph i of Rule 17a4 was adopted to assure the accessibility of broker-dealer records in situations where, for example, a service bureau refuses to surrender the records due to nonpayment of fees..

PO 00000

Frm 00012

Fmt 4701

Sfmt 4702

other remedies for the firms failure to produce the records.85
For these reasons, the Commission is proposing to amend Rule 17a4f to require at all times that a senior officer of the broker-dealer, who has independent access to and the ability to provide the records, execute the undertakings.86 This would mean that 85 The proposed access and undertakings requirements would not require actions that contravene any provision of otherwise applicable law or actions beyond reasonable steps.
86 See paragraph f3vii of Rule 17a4, as proposed to be amended. In addition to this amendment and the amendments discussed below, the Commission is proposing to amend the text of the access and undertakings requirements in the following ways: 1 The introductory text of paragraph f3vii would be modified to make a senior officer obligated to provide access to the records and the undertakings, and to conform to the proposed introductory text to paragraph f3 by replacing the phrase For every member, broker or dealer exclusively using electronic storage media for some or all of its record preservation under this section, at least one third party the undersigned, who has access to and the ability to download information from the members, brokers or dealers electronic storage media to any acceptable medium under this section, must file with the designated examining authority for the member, broker or dealer the following undertakings with respect to such records: with the phrase Have at all times a senior officer of the member, broker, or dealer hereinafter, the undersigned, who has independent access to and the ability to provide records maintained and preserved on the electronic recordkeeping system, file with the designated examining authority for the member, broker or dealer the following undertakings with respect to such records:; 2 throughout the text of the undertaking references to the member, broker, or dealer would be replaced with bracketed references to insert the name of the member, broker, or dealer;
3 the first sentence of the undertakings would be modified to conform to proposed changes to Rule 17a4f discussed above and below by replacing the last phrase in the sentence that reads to download information kept on the members, brokers or dealers electronic storage media to any medium acceptable under 240.17a4 with the phrase and to download copies of a record and its audit trail if applicable preserved by means of an electronic recordkeeping system of Name of the Member, Broker, or Dealer into both a human readable format and a reasonably usable electronic format in the event of a failure on the part of Name of the Member, Broker, or Dealer to download a requested record or its audit trail if applicable;
4 the second sentence of the undertakings would be modified to conform to proposed changes to Rule 17a4f discussed above by replacing the first phrase of the sentence that reads Furthermore, the undersigned hereby undertakes to take reasonable steps to provide access to information contained on the members, brokers or dealers electronic storage media, including, as appropriate, arrangements for the downloading of any record with the phrase Furthermore, the undersigned hereby undertakes to take reasonable steps to provide access to the information preserved by means of an electronic recordkeeping system of Name of the Member, Broker, or Dealer, including, as appropriate, downloading any record; and 5 the third sentence of the undertakings would be modified to conform to proposed changes to Rule 17a4f discussed above by replacing it with the following sentence Specifically, the undersigned will take reasonable steps that, in the event of a failure on the part of Name of the Member, Broker, or Dealer to download the record into a human readable
E:FRFM01DEP2.SGM

01DEP2