Requirements for Investment Advisers Electronically Maintaining Required Books and Records

September 11, 2013

Under Rule 204-2, “Books and records to be maintained by investment advisers,” of the Investment Advisers Act of 1940 (“Investment Advisers Act”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to make and keep true, accurate, and current certain books and records relating to its investment advisory business. Although most state securities regulators have adopted the same or similar books and records requirements, state registered investment advisers need to make sure that they are familiar and complying with the books and records requirements of the appropriate state securities regulator. Under Rule 204-2(g), SEC registered investment advisers are permitted to maintain all required records electronically, if the investment adviser establishes and maintains procedures: “(i) To maintain and preserve the records, so as to reasonably safeguard them from loss, alteration, or destruction, (ii) To limit access to the records to properly authorized personnel and the [SEC] (including its examiners and other representatives); and (iii) To reasonably ensure that any reproduction of a of non-electronic original record on electronic storage media is complete, true, and legible.” SEC registered investment advisers must also ensure that electronically maintained records are arranged and indexed in a manner that permits easy location, access, and retrieval and upon request by the SEC investment advisers must be able to promptly provide: “(A) A legible, true, and complete copy of the record in the medium and format in which it is stored; (B) A legible, true and complete printout of the record; and (C) Means to access, view, and print the records.” SEC registered investment advisers must also separately store, for the time required under Rule 204-2 for preservation of the original record, a duplicate copy of the record on any medium allowed under Rule 204-2.

These days most investment advisers chose to maintain some or all of their required books and records electronically and, when doing so, investment advisers must ensure that they are meeting the SEC or state securities regulator books and records requirements. Investment advisers must develop and implement policies and procedures to adequately address the maintenance of all required books and records and, if any of these books and records are maintained electronically, these policies and procedures should address the SEC or state securities regulator requirements for maintaining electronic records. Investment advisers’ policies and procedures should not only address the retention of the required books and records, but should also address the destruction of books and record in a manner that will safeguard client data.  As with all investment adviser policies and procedures, investment advisers should periodically test their policies and procedures to ensure compliance with the SEC or state securities regulator books and records requirements. Additionally, as an investment adviser incorporates new systems or forms of technology in to the investment adviser’s business practice, the investment adviser must review and revise its policies and to address the new systems or practices resulting from the use of the new systems or forms of technology.

It is important that all investment advisers know what books and records must be maintained, how those books and records can be maintained, and for how long the books and records must be maintained.  If your investment adviser would like more information and guidance on maintaining the appropriate books and records for your registered investment adviser, join RIA Compliance Consultants for our upcoming complimentary webinar, “Investment Adviser Books and Records Requirements,” hosted September 19, 2013, at 12:00pm CDT. Our consultants will not simply review Rule 204-2, but instead will provide an overview of the files, documents, and reports a regulator may request during an examination of an investment adviser. Our consultants will also discuss some of the common investment adviser deficiencies relating to maintaining appropriate books and records. To register for this event, click here.

Posted by Bryan Hill
Labels: Books Records, Compliance Program, Record Keeping