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Statement on Amended Recordkeeping Requirements

Commissioner Jaime Lizárraga bio photo

Commissioner Jaime Lizárraga

Oct. 12, 2022

In 1997, Netscape was the dominant web browser and the hottest tech item was a Tamagotchi – a virtual pet on a keychain. Sony marketed a data storage product called the Minidisc that was quickly overtaken by CD-R technology.

Streaming music was possible in 1997, but the well-known apps most of us are familiar with today weren’t around yet. Chances are that RealPlayer was the go-to streaming platform for most. And many may recall the Pilot 1000, the first generation personal digital organizer that as the New York Times reported, “shared data with a desktop computer and synchronized information quickly on both machines.”

Although the contours of the digital lifestyle we take for granted today were starting to emerge back then, technology has evolved significantly since the Commission first adopted its electronic recordkeeping rules in 1997. Optical disks were the predominant electronic storage method then, instead of the cloud of today.

To catch up with rapid technological change, the Commission is modernizing its recordkeeping rules. Today’s amendments will make these rules more technology neutral. The amendments address the maintenance and preservation of records; use of third-party services, including cloud-based services, to hold records; and prompt production of records.

The amendments are designed to provide market participants with flexibility in determining how to preserve their records. The adoption of these amendments could result in significant market efficiencies and cost savings without compromising market stability or smooth market operations.

Recordkeeping by some broker-dealers and security-based swap entities in recent years has shifted to servers or other storage devices owned or operated by cloud service providers. Unlike the relationship with traditional third-party recordkeeping providers, firms using cloud services retain control of their recordkeeping system, as well as access to the records held in the cloud.

With these amendments, broker-dealers would no longer be required to notify their designated examining authority before deploying a recordkeeping system. The amendments would also permit firms to designate an executive officer for the purpose of executing an undertaking that provides the Commission access, directly or indirectly, to its records.

To meet the current recordkeeping requirement that records be preserved in an exclusively write once, read many, or WORM, format, the amendments provide for an audit-trail alternative. This alternative is meant to balance the concerns with current WORM requirements while preserving the goal of the Commission’s recordkeeping rules, which is to protect the authenticity and reliability of original records.

The amendments also include an alternative undertaking for cloud service providers that is tailored to how these third party providers hold electronic records.

In addition, the amendments requires records maintained by a firm to be provided to the Commission in a reasonably usable electronic format.

Finally, the Commission is designating FINRA as the Commission’s designee for purpose of accessing its members’ records.

Today’s Commission updates to electronic recordkeeping are long overdue, strike the right balance between market oversight and flexibility, and I’m pleased to support them.

I would like to thank the staff from the Division of Trading and Markets, the Division of Economic and Risk Analysis, and the Office of General Counsel for their work on these amendments. I appreciate your dedication and extensive work on these highly technical amendments.