A broker-dealer’s internal Policies and Procedures for keeping accurate and up-to-date records of compensation, travel, gifts, and entertainment expenditures, including audio files, are an essential part of a firm’s books and records requirements.
New-York-based broker-dealer BGC Financial has recently found itself on the wrong side of an SEC Division of Enforcement investigation into violations pertaining to improper record keeping.
The firm has agreed to settle a $1.25 million penalty for failure to preserve audio files requested in 2014 by the SEC and for inaccurately documenting a multitude of business expenses.
Maintaining Accurate Books and Records — Where the Breakdown Occurred
New York-based broker-dealer BGC Financial recently found itself on the wrong side of an SEC Enforcement investigation into violations pertaining to improper record keeping.
According to the SEC’s order, BGC disposed of audio files for the recorded telephone lines of eight brokers under SEC scrutiny. BGC claims that the department responsible for maintaining voice recordings had no knowledge of the SEC’s request and had, in fact, adhered to the firm’s policy of not maintaining such recordings for a period exceeding one year.
In addition to the failure to produce the voice recordings demanded by the SEC investigators, BGC has been accused of failing to keep accurate books and records pertaining to broker compensation, travel reimbursements, entertainment expenses, and gifts.
Although BGC has neither admitted nor denied the SEC’s charges, they have agreed to accept a cease-and-desist order, a censure, and to pay the costly $1.25 million penalties.
Maintaining Accurate Books and Records — What the BGC Investigation Teaches Us
While the apparent errors at BGC are examples of serious mishandling of critical books and records, minor cases of poor record-keeping practices could also put your firm in danger of violating books and records requirements per the SEC’s rules and regulations.
In an official release, the SEC Director of the New York Regional Office, Marc Berger, has stated, “The federal securities laws require broker-dealers to maintain accurate books and records and promptly provide records requested by SEC staff. The failure to preserve and produce responsive documents undermines the Commission’s ability to provide effective oversight of registrants and to carry out its mission to protect investors.”
(Read the entire SEC press release here.)
In light of the enforcement case involving BGC, two questions every business or organization should be asking itself are these:
- Are our Policies and Procedures regarding books and records accurate and sufficient enough to respond fully and in a timely manner to a regulatory exam?
- Are the supervisors at the firm responsible for implementing our books and records Policies and Procedures doing so in a way that will allow us to respond fully and in a timely manner to a regulatory exam?
Updating Policies and Procedures for Accurate Record-Keeping — Outside Help May Be Needed
If you are having difficulty answering either of those questions, it may be time to bring in outside experts to help determine whether your current Policies and Procedures for keeping accurate books and records are sufficient to keep you in the clear.
Core Compliance & Legal Services, Inc., offers broker-dealer consulting services to help organizations ensure they are maintaining accurate books and records well in advance of a regulatory exam.