SIFMA urges SEC to modernize recordkeeping rules for broker-dealers and RIAs

The Securities Industry and Financial Markets Association is calling on the Securities and Exchange Commission to overhaul its decades-old recordkeeping requirements for broker-dealers and RIAs.

In an open letter to SEC Chairman Paul Atkins dated October 15, the industry group argued that current rules are too broad, outdated, and burdensome for firms navigating modern communications technology.

Among the proposed reforms it outlined, SIFMA laid out arguments for narrowing the scope of what firms must retain, excluding communications that provide no investor protection benefit, and harmonizing retention periods across the industry.

The trade group’s request comes amid heightened regulatory scrutiny of electronic communications, with both the SEC and FINRA have levied significant penalties against firms for recordkeeping failures in recent years.

Earlier this month, FINRA fined Ally Invest $850,000 after the robo-advisory firm failed to preserve more than 22 million business-related electronic communications due to technical errors, leaving the firm unable to fully respond to dozens of regulatory inquiries.

Last year, the SEC ordered 26 firms – including Ameriprise, Edward Jones, LPL, and Raymond James – to pay nearly $393 million in combined penalties for widespread failures to maintain and preserve records, with several receiving reduced penalties for self-reporting their violations. In January, just before former SEC Chair Gary Gensler stepped down ahead of President Donald Trump's inauguration, the regulator announced another $63 million in fines against a dozen firms for failures to maintain and preserve electronic communications. 

SIFMA’s letter argues that the current rules, which were originally designed for paper-based communications, have not kept pace with the proliferation of digital channels and now “create unmanageable compliance burdens and costs without corresponding investor protection benefits.” The group is urging the SEC to “narrow the retention obligation to client-facing business communications substantively related to investment or securities advice or transactions, consistent with the original intent of the rules.”

SIFMA is also asking the SEC to exclude categories of communications such as emojis, unsolicited inbound messages, and administrative notes like “I am running late,” as well as AI-generated meeting transcripts and collaborative platform inputs. The letter argues that the expansion of the definition of “communications” to include virtually all forms of electronic messaging has led to “burdensome, costly, and unnecessary roadblocks for firms in effectively managing their relationships with clients through seamless and modern communication.”

The group also recommends the SEC provide a safe harbor for firms that implement and maintain reasonable policies and procedures, rather than enforcing a strict liability standard.

“A failure to retain communications should not create a presumption that the firm’s policies and procedures were not reasonably designed or implemented,” the letter says.

Another major change sought by SIFMA is the harmonization of retention periods. Currently, broker-dealers must retain communications for three years, while RIAs are required to keep them for five years. SIFMA proposes a uniform three-year retention period for all registrants, arguing that “no rationale exists supporting the retention of investment adviser communications for a longer period than for broker-dealers.”

Finally, SIFMA is urging the SEC to remove the requirement that third-party service providers, such as cloud storage vendors, file undertakings with the commission to provide access to records.

The letter contends that this rule “has become a major hurdle for many broker-dealers seeking to use cloud service providers,” and notes that the SEC has “rarely – if ever – invoked this provision and used a third-party provider to access a broker-dealer’s documents.”

SIFMA said it welcomes further discussion with the SEC on these proposals, emphasizing the need for rules that “reflect current practices and technology, while ensuring that future advances in communications are not unnecessarily swept into their scope.”