FINRA Compliant Document Management
If you work in the financial services industry in the United States, odds are you’re familiar with the Financial Industry Regulatory Authority, or FINRA.
If not, here’s a quick refresh: FINRA is a not-for-profit organization that helps maintain fair financial markets and “protect the investing public against fraud and bad practices.” FINRA specifically regulates three types of firms:
- Broker-dealer firms
- Capital acquisition brokers
- Funding portals
Although they’re an independent body, FINRA works under the supervision of the Securities and Exchange Commission (SEC) to regulate the broker-dealer industry. As such, they have the authority to establish and enforce regulations — and it’s a job they take seriously. In 2020 alone, FINRA issued over 800 disciplinary actions for unethical behavior and levied $57 million in fines against non-compliant brokers and firms.
To avoid such consequences at your firm, it’s important to understand FINRA requirements and make sure that your organization and the systems you rely on are fully compliant.
One of the most critical systems is the one you use to manage documents and records. But what does FINRA compliance actually look like when it comes to recordkeeping? And how can you simplify the process so it’s less of a burden on your team? We’ll walk you through what you need to know.
What is FINRA compliance?
The full scope of FINRA covers a broad range of rules and guidance for securities firms and brokers. So it should come as no surprise that FINRA and the SEC have very strict requirements for storing electronic books and records information.
And believe us when we say, you want to pay attention to those requirements — or you’ll pay the consequences. Take it from one financial firm who received a $6.5 million fine for non-compliant record keeping:
"[Among other things,] the firm failed to retain electronic records in the required format, preserve certain electronic records, and notify FINRA prior to employing electronic storage media. The firm’s failure affected at least 87 million records and led to the permanent deletion of over 1.5 million customer communications."
Keep in mind, too, that FINRA-compliant document management isn’t just compliance for compliance’s sake. Recordkeeping is also how your firm provides proof to the SEC and other regulatory bodies that you’re compliant with nearly every other rule.
Needless to say, the importance of well-maintained records cannot be understated.
FINRA Recordkeeping Rules
So what exactly are the FINRA rules for documents and records? The requirements are found in Section 17(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act" or "SEA").
Rule 17a-3 is all about the “what.” It details the specific types of records that broker-dealers must maintain, such as:
- Asset and liability ledgers
- Customer account ledgers
- Income ledgers
- Order tickets
- Securities records
- Trade blotters
- Trade confirmations
- Trial balances
- Various employment related documents
Rule 17a-4 focuses on the “how” of maintaining records. To stay compliant, your firm’s electronic document storage (and any document management platforms you use) must meet certain requirements, including:
- Retention and Retrievability: Records must be kept for a minimum of six years, unless otherwise stated. They should be easily accessible for at least the first two years of that period.
- Record Immutability: Once created, electronic records can’t be altered, changed, or deleted.
- Independent Access: There must be a way for an independent third-party to access and download data if requested.
- Data Backups: The firm and/or system must store a duplicate copy of the data in a physically separate location for the full required retention period of the document.
Of course, it’s up to your organization to review the exact details of FINRA requirements to ensure you’re fully compliant.
NetDocuments Helps Simplify Compliant Recordkeeping
There’s no doubt that storing records electronically can save your firm a lot of time — not to mention space — compared with maintaining a physical paper trail. But going digital with your firm’s records can also be a challenge, especially if you get stuck trying to figure out compliance on your own.
Some firms opt to divide the responsibilities among several providers. For example, they may choose one solution to store documents for day-to-day use, then use a separate service for archiving and third-party access.
But let’s be honest: Trying to keep multiple vendors and tools straight makes compliance a lot of work… and the harder it is for your firm to stay compliant, the greater risk you run of getting into trouble with FINRA.
NetDocuments, on the other hand, makes it easy to ensure your records are compliant — and even put some of your compliance tasks on autopilot.
Our document management system (DMS) platform meets all of the technical requirements required by the SEC. A number of our current customers use NetDocuments to help them stay in full compliance with FINRA and other regulations. Here are a few of the ways we help:
- Within the platform, users can create a Write Once Read Many (WORM) repository that prevents changes and deletion once a record is added to the repository.
- You can define your documents’ lifecycle to meet the required retention period, so that documents are deleted when they’re no longer needed. (You can always lengthen your retention period if necessary, but never shorten it.)
- You can give NetDocuments independent access to your records. In other words, you give us permission to ‘break the glass’ if we receive the order from an administrative authority.
Ultimately, NetDocuments offers one of the most convenient ways for financial services organizations to store data and records compliantly.
And of course, you also get all the productivity-boosting, collaboration-enhancing, and security-strengthening benefits of the leading cloud-based document and email management platform.