Overview

Earlier today FINRA issued Regulatory Notice 18-31 to provide member firms with information relative to the recent guidance issued by staff of the SEC’s Division of Trading and Markets with respect to the use of third-party recordkeeping services to preserve records pursuant to SEA Section 17(a) and SEA Rule 171-4.

Background

The SEC recently issued guidance regarding contractual arrangements between broker-dealers and third-party recordkeeping services providers (” Service Providers”) that include provisions permitting the Service Providers to delete or discard the broker-dealer’s records required to be preserved pursuant to SEA Rules 17-3 and 17a-4 often times in response to non-payment by the broker-dealer of fees due under the contract terms.

Asgard’s Take

It is our position that cooperation with regulators is optimal to foster a firm’s culture of compliance.  FINRA and SEC have been clear regarding their heightened awareness related to investor protection.  Digital assets are an evolving area with limited regulatory guidance.  Keeping the lines of communication open with regulators is critical.  However, there is concern that FINRA is stepping outside the lines, slightly, by inquiring of business activities of a member’s affiliates, particularly in this developing area.  If you need assistance in responding to any regulatory request or have any questions regarding this Regulatory Notice, please do not hesitate to contact an ARG Compliance Analyst.