Preservation Guidelines for FINRA Rule 4511

Stephanie Greenshields, Client Manager at IPRO Tech

Compliance. Who among us does not get excited when we consider adhering to the minutiae of SRO oversight? Anyone?

Compliance can feel like a burden and an expensive one at that. Organizations who don’t have a department dedicated to compliance, often have to pay consultants handsomely to ensure that they have dotted their I’s and crossed their T’s.

However, it provides important protection not just to consumers, but also to business owners.

The Benefits of Good Record Management

Of the more useful FINRA rules, both for consumers and businesses is Rule 4511. How could compliance possibly benefit the business owner?

4511 governs record retention for all of the 4500 series of the FINRA ruleset. While record retention could certainly assist a client with a complaint, it will more likely be a benefit to a company that operates ethically and in good faith.

When those I’s are dotted and those T’s are crossed, businesses have an extra layer of protection against lawsuits and fraudulent claims. If insufficient data for advice or denial of disclosure is claimed, a three-year-old retained document may prove key in the defence of a firm’s innocence.

FINRA Rule 4511 addresses general retention rules. It’s a catch-all rule that pertains to documents that the lawyers at FINRA forgot to mention, and each subsequent rule gives retention periods pertaining to specific documentation.

  • Rule 4512 governs customer information – 6 years of retention is required from the latest date provided;
  • Rule 4513 governs written complaints – they must be retained for 4 years;
  • Rule 4514 covers negotiable instruments drawn on account – this data has to be kept for 3 years.

4511 establishes the requirement to “make and preserve books and records as required under the FINRA rules…” This is commonly referred to as retention.

Generally, each type of document will have a retention period. If no retention period is specified under FINRA rules, 4511 establishes a minimum retention period of 6 years.

Multiple years’ worth of documentation is a lot of paper. Maybe you could store it all on those cool micro-dots spies used to send secret messages with? Alas, you’ll need to use a more conventional medium to store your retained documents. This brings us to the next question.

Which Medium Should you Use for Financial Data Retention?

FINRA Rule 4511 establishes the use of the Securities Exchange Act (SEA) Rule 17a-4 to govern the media on which retained books and records are stored. The precise wording of 17a-4 requires storage on “micrographic media or by means of electronic storage media.” Sound a little vague? It is.

While electronic storage medium sounds self-explanatory, 17a-4 requires that the media:

  • Be non-rewritable and non-erasable;
  • Can verify the quality and accuracy of the storage media recording process;
  • Serializes and timestamps the documents (for retention’s sake); and
  • Be readily available whenever needed.

Electronic storage is without a doubt the most efficient and cost-effective way to address the requirements of 4511. Physical storage of documents takes a lot of paper, a lot of storage space and is vulnerable to deterioration and natural disasters such as floods and fire.

Choosing electronic storage makes it easy to have an off-site backup, and a cloud-based storage solution requires no physical presence in your office other than a computer with which to access it.

The Choice that Creates Value

Considering complying with and the consequences of not complying with FINRA Rule 4511 is enough to trigger anxiety-induced stress migraines in the sternest of constitutions. Luckily, there are resources available to assist business owners so that they can focus on running profitable enterprises.

Software vendors provide turnkey solutions to complying with rules like 4511. Of course, there is a cost to implementing them. But cost-benefit analyses quickly reveal that having the right solutions in place creates exponential benefits in terms of increased productivity and sales opportunity.