SEC adopts new financial responsibility and reporting requirements for US-registered broker-dealers

Abstract

Purpose – The purpose of this paper is to summarize the SEC's recent approval of amendments to its net capital, customer protection, books and records, notification and reporting requirements for broker-dealers, in an effort to enhance financial responsibility and investor asset safekeeping obligations. Design/methodology/approach – The paper summarizes new requirements for broker-dealers relating to custody, reporting, and Rules 15c3-3 (customer protection rule), 15c3-1 (net capital rule), 17a-3 and 17a-4 (books and records rules) and 17a-11 (notification rule) under the Securities Exchange Act of 1934; explains that several of the amendments approved codify long-standing SEC staff interpretations of the rules and accounting standards that govern these requirements; clarifies whether the requirements apply to broker-dealers that carry customer accounts on their books (commonly referred to as “carrying brokers”) and/or to limited-purpose broker-dealers that do not carry customer accounts on their books. Findings – Although certain of the amendments codify long-standing SEC staff interpretations of the rules and accounting standards, broker-dealers will be subject to additional legal and regulatory requirements resulting from the amendments commencing in October 2013. Practical implications – Broker-dealers should begin to consider whether changes to operations, policies and procedures, and reporting obligations will be required as a result of the amendments. Originality/value – The paper provides practical explanation by experienced financial services lawyers.