PRA Supporting Statement (17a-3)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 17a-3
This submission is being made pursuant to the Paperwork Reduction Act of 1995, 44
U.S.C. Section 3501 et seq.
A.

JUSTIFICATION
1.

Information Collection Necessity

All brokers and dealers in the ordinary course of their businesses need to maintain certain
books and records reflecting, among other things, income and expenses, assets and liabilities,
daily trading activity and the status of customer and firm accounts. These books and records are,
for the most part, standard and would be kept by any prudent individual engaging in a securities
business.
The Commission is statutorily authorized by Sections 17(a) 1 and 23(a) 2 of the Securities
Exchange Act of 1934 (“Exchange Act”) to promulgate rules and regulations regarding the
maintenance and preservation of books and records of exchange members, brokers and dealers
(“broker-dealers”). Exchange Act Section 17(a)(1) provides in pertinent part:
“[all members of a national securities exchange and registered brokers and dealers] shall
make and keep for prescribed periods such records...as the Commission, by rule,
prescribes as necessary or appropriate in the public interest, for the protection of
investors, or otherwise in furtherance of the purposes of the [Exchange Act].”
To standardize recordkeeping practices throughout the industry, the Commission, in
1939, adopted Rule 17a-3, 3 which established minimum standards with respect to business
records that broker-dealers must create. 4 Rule 17a-3 requires broker-dealers to make and keep
current certain records relating to their financial condition, communications, customer
information, and employees. The Commission adopted certain Amendments to Rule 17a-3 on
October 25, 2001 (the “2001 Amendments”), in part as a response to the National Securities
Market Improvement Act of 1996 (“NSMIA”). 5 This collection of information requirement was
most recently approved without change by OMB on March 9, 2017, and expires on March 31,
2019.
As part of proposed new Rule 17a-14 and Form CRS, and proposed Regulation Best
Interest, the Commission is proposing to amend Rule 17a-3 by adding new paragraphs (a)(24)

1
2
3
4
5

15 U.S.C. § 78q(a).
15 U.S.C. § 78w(a).
17 CFR 240.17a-3.
Exchange Act Release No. 2304 (Nov. 13, 1939).
Pub. L. No. 104-290, 110 Stat. 3416 (1996).

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and (a)(25). 6 To aggregate the entire burden of Rule 17a-3 into one information collection (and
existing OMB control number), the Commission is adding the annual burden hours for new
paragraphs (a)(24) and (a)(25) of Rule 17a-3 into this information collection. The Rule 17a-3
information collection OMB control number is 3235-0033.
2.

Information Collection Purpose and Use

The purpose of requiring broker-dealers to create the records specified in Rule 17a-3 is to
enhance regulators’ ability to protect investors. These records and the information contained
therein will be and are used by examiners and other representatives of the Commission, state
securities regulatory authorities, and the self-regulatory organizations (e.g., FINRA, CBOE, etc.)
(“SROs”) to determine whether broker-dealers are in compliance with the Commission’s
antifraud and anti-manipulation rules, financial responsibility program, and other Commission,
SRO, and state laws, rules, and regulations. If broker-dealers were not required to create these
records, Commission, SRO, and state examiners would be unable to conduct effective and
efficient examinations to determine whether broker-dealers were complying with relevant laws,
rules, and regulations. In addition, records made and retained in accordance with proposed Rule
17a-3(a)(25) and the proposed amendment to Rule 17a-4(e)(5) 7 would assist a broker-dealer in
supervising and assessing internal compliance with proposed Regulation Best Interest.
Proposed rule 17a-3(a)(24) would require SEC-registered broker-dealers to make a record
indicating the date that a relationship summary was provided to each customer and to each

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See Regulation Best Interest, Release No. 34-83062; File No. S7-07-18 (Apr. 18, 2018)
(“Regulation Best Interest Proposing Release”). The Commission proposed a new rule under the
Exchange Act establishing a standard of conduct for broker-dealers and natural persons who are
associated persons of a broker-dealer when making a recommendation of any securities
transaction or investment strategy involving securities to a retail customer (“Regulation Best
Interest”). Because Regulation Best Interest has its own OMB Control Number, a separate
supporting statement is being submitted.
In addition, the Commission proposed new Rule 17a-14 and Form CRS under the Exchange Act
that would require registered broker-dealers that offer services to retail investors to prepare, file
with the Commission, and deliver to retail investors a brief relationship summary. See Form CRS
Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail
Communications and Restrictions on the use of Certain Names or Titles, Release No. 34-83063;
File No. S7-08-18 (Apr. 18, 2018) (“Relationship Summary Release”). As with Regulation Best
Interest, Rule 17a-14 and Form CRS would have its own OMB Control Number [•], for which a
separate supporting statement is being submitted.

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As part of proposing Regulation Best Interest, the Commission is also proposing to amend
Exchange Act Rule 17a-4(e)(5) to require broker-dealers to retain any information that the retail
customer provides to the broker-dealer or the broker-dealer provides to the retail customer
pursuant Rule 17a-3(a)(25), in addition to the existing requirement to retail information obtained
pursuant to Rule 17a-3(a)(17). Because the recordkeeping obligations are being adopted under
Rule 17a-4, which has its own OMB Control Number, a separate supporting statement is being
submitted to address these amendments.

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prospective customer who subsequently becomes a customer. 8 The Commission staff would use
this collection of information in its examination and oversight program.
Proposed rule 17a-3(a)(25) would require broker-dealers to make a record of “all
information collected from and provided to the retail customer” pursuant to Regulation Best
Interest where a securities-related transaction or investment strategy involving securities is or
will be recommended to a retail customer. The broker-dealer must also make a record of the
identity of the associated person, if any, responsible for the account.
3.

Consideration Given to Information Technology

The Commission believes that improvements in telecommunications and data processing
technology may reduce any burdens that result from the proposed addition of paragraphs (a)(24)
and (a)(25) to Rule 17a-3. The proposed rules do not prescribe particular forms or methods of
compliance for broker-dealers or their associated person, to allow maximum flexibility with
respect to new technologies as they develop.
4.

Duplication

Rule 17a-3 was drafted and amended to codify SRO record-keeping requirements and the
record-keeping practices of prudent broker-dealers. Although most broker-dealers already create
many of the records required by the proposed additions of paragraphs (a)(24) and (a)(25) to Rule
17a-3 either voluntarily or pursuant to SRO requirements, no duplication of such information is
apparent because no other Commission rule establishes an explicit requirement to create such
records.
As noted above, proposed Rule 17a-3(a)(24) would require broker-dealers to make a
record indicating the date that a relationship summary was provided to each customer and to
each prospective customer who subsequently becomes a customer. No other rule requires brokerdealers to provide the same information that would be required by Rule 17a-3(a)(24).
As noted above, proposed Rule 17a-3(a)(25) would require a broker-dealer to make a
record of all information collected from and provided to the retail customer pursuant to Proposed
Regulation Best Interest. We understand that broker-dealers currently make records of relevant
customer investment profile information, and we therefore assume that no additional recordmaking obligations would arise as a result of broker-dealers’ or their registered representatives’
collection of information from retail customers. 9

8

Although the disclosures in Form CRS are discussed in this supporting statement, the burden and
cost estimates associated with preparing, filing, posting and delivery of Form CRS will have its
own OMB Control Number, for which a separate supporting statement is being submitted.

9

The PRA burdens and costs arising from the requirement that a record be made of all information
provided to the retail customer are accounted for in proposed Regulation Best Interest and Form
CRS Relationship Summary; Amendments to Form ADV; Required Disclosures in Retail
Communications and Restrictions on the use of Certain Names or Titles, Release No. 34-83063,

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In addition, the proposed amendment to Rule 17a-3(a)(25) would require a broker-dealer,
“for each retail customer to whom a recommendation of any securities transaction or investment
strategy involving securities is or will be provided,” to make a record of the “identity of each
natural person who is an associated person, if any, responsible for the account.” We understand
that broker-dealers likely make such records in the ordinary course of their business pursuant to
Exchange Act Rules 17a-3(a)(6) and (7). However, we are assuming based on our understand of
current broker-dealer practices, for purposes of compliance with proposed Rule 17a-3(a)(25),
that broker-dealers would need to create a record, or modify an existing record, to identify the
associated person, if any, responsible for the account in the context of proposed Regulation Best
Interest.
5.

Effect on Small Entities

The Regulatory Flexibility Act (“RFA”) 10 requires federal agencies, in promulgating
rules, to consider the impact of those rules on small entities. Section 603(a) 11 of the
Administrative Procedure Act, 12 as amended by the RFA, generally requires the Commission to
undertake a regulatory flexibility analysis of all proposed rules, or proposed rule amendments, to
determine the impact of such rulemaking on “small entities.” 13 For purposes of a Commission
rulemaking in connection with the RFA, a broker-dealer will be deemed a small entity if it: (1)
had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the
prior fiscal year as of which its audited financial statements were prepared pursuant to Rule 17a5(d) under the Exchange Act, 14 or, if not required to file such statements, had total capital (net
worth plus subordinated liabilities) of less than $500,000 on the last day of the preceding fiscal
year (or in the time that it has been in business, if shorter); and (2) is not affiliated with any
person (other than a natural person) that is not a small business or small organization. 15

IA-4888, File No. S7-08-18 (“Relationship Summary Proposal”). With respect to the
requirement that a record be made of all information from the retail customer, we believe that
proposed Rule 17a-3(a)(25) would not impose any new substantive burdens on broker-dealers.
As discussed in the Regulation Best Interest Proposing Release, we believe that the obligation to
exercise reasonable diligence, care, skill and prudence would not require a broker-dealer to
collect additional information from the retail customer beyond that currently collected in the
ordinary course of business even though a broker-dealer’s analysis of that information and any
resulting recommendation would need to adhere to the enhanced best interest standard of
Regulation Best Interest.
10
11
12
13

14
15

5 U.S.C. 601 et seq.
5 U.S.C. 603(a).
5 U.S.C. 551 et seq.
Although Section 601(b) of the RFA defines the term “small entity,” the statute permits
agencies to formulate their own definitions. The Commission has adopted definitions for
the term small entity for the purposes of Commission rulemaking in accordance with the
RFA. Those definitions, as relevant to this proposed rulemaking, are set forth in Rule 010 under the Exchange Act, 17 CFR 240.0-10.
See 17 CFR 240.17a-5(d).
See 17 CFR 240.0-10(c).

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Based on 2017 FOCUS Report data about the broker-dealer retail market, we believe that
approximately 802 broker-dealers – with an estimated 7,845 retail customer accounts – would
qualify as small entities subject to Regulation Best Interest and the proposed new record-making
and recordkeeping requirements. However, proposed Regulation Best Interest does not
distinguish between small entities and other broker-dealers. We recognize that different brokerdealers may require different amounts of time or external assistance in preparing for proposed
Relationship Best Interest. The Commission believes, however, that imposing different
requirements on smaller firms would not be consistent with investor protection and the purposes
of proposed Regulation Best Interest. The Commission reviews all rules periodically, as
required by the Regulatory Flexibility Act, to identify methods to minimize recordkeeping or
reporting requirements affecting small businesses.
The number and complexity of records required to be made under Rule 17a-3 vary
proportionately with the volume and complexity of the broker-dealer’s business.
6.

Consequences of Not Conducting Collection

The information required to be collected and recorded under Rule 17a-3 allows the
Commission, state securities regulatory authorities, and SROs to determine whether brokerdealers are in compliance with Commission, state, and SRO anti-fraud and anti-manipulation
rules, financial responsibility rules, and other rules and regulations. Although many brokerdealers would likely make these records as a matter of best practice, they are not explicitly
required to do so under current Commission rules. If a broker-dealer does not make these
records, or it makes these records less frequently, the level of investor protection will be reduced
because the existence of the records would assist a broker-dealer in supervising and assessing
internal compliance with Regulation Best Interest and assist the Commission and SRO stuff in
connection with examinations and investigations. The records a broker-dealer is required to
make under Rule 17a-3 are, for the most part, essential to the successful operation of a securities
firm, and failure to make the records on a current basis would likely cause the broker-dealer to
experience operational difficulties.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)2

There are no special circumstances. This collection is consistent with the guidelines in
with 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The Commission has issued a release soliciting comment on the new “collection of
information” requirements and associated paperwork burdens under the Relationship Summary
Release, which includes Rule 17a-3(a)(24), and proposed Regulation Best Interest, which
includes Rule 17a-3(a)(25). Copies of the releases are attached. Comments on Commission
releases are generally received from registrants, investors, and other market participants. In
addition, the Commission and staff participate in ongoing dialogue with representatives of
various market participants through public conferences, meetings and informal exchanges. Any
comments received on this proposed rulemaking will be posted on the Commission’s public
website, and made available through http://www.sec.gov/rules/proposed.shtml. The Commission

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will consider all comments received prior to publishing the final rule, and will explain in any
adopting release how the final rule responds to such comments, in accordance with 5 C.F.R.
1320.11(f).
9.

Payment or Gift

No gifts or payments will be given to respondents.
10.

Confidentiality

The records required by Rule 17a-3 are available only to the examination staffs of the
Commission, state regulatory authorities, and the SROs. Subject to the provisions of the
Freedom of Information Act, 5 U.S.C. § 552 (“FOIA”) and the Commission’s rules thereunder
(17 CFR 200.80(b)(4)(iii)), the Commission generally does not publish or make available
information contained in reports, summaries, analyses, letters, or memoranda arising out of, in
anticipation of, or in connection with an examination or inspection of the books and records of
any person or any other investigation.
11.

Sensitive Questions

No questions of a sensitive nature are asked. The information collection does not collect
any Personally Identifiable Information (“PII”).
12.

Information Collection Burden

Proposed Regulation Best Interest would impose a best interest obligation on a brokerdealer when making recommendations of any securities transaction or investment strategy involving
securities to “retail customers.” Form CRS and Rule 17a-14 would require broker-dealers that offer
services to retail investors to prepare, file with EDGAR, post to the broker-dealer’s website (if
available), and deliver to retail investors a brief relationship summary. As of December 31, 2017,
3,841 broker-dealers were registered with the Commission – either as standalone broker-dealers or
as dually-registered entities. Based on data obtained from Form BR, the Commission preliminarily
believes that approximately 74.4% of this population, or 2,857 broker-dealers have retail customers
and therefore would likely be subject to Regulation Best Interest and Rules 17a-14 and Form CRS,
as well as the proposed amendments to Rules 17a-3(a)(24), 17a-3(a)(25) 17a-4(e)(5), and 17a4(e)(10). 16
As with broker-dealers, proposed Regulation Best Interest would impose a best interest
obligation on natural persons who are associated persons of broker-dealers, when making
recommendations of any securities transaction or investment strategy involving securities to
“retail customers.” The Commission preliminarily believes that approximately 435,071 natural
persons would qualify as retail-facing, licensed representatives at standalone broker-dealers or

16

As of December 31, 2017, 3,841 broker-dealers filed Form BD. Retail sales by broker-dealers
were obtained from Form BR.

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dually-registered firms, 17 and would therefore likely be subject to proposed Regulation Best
Interest, and the proposed amendments to Rules 17a-3(a)(25) and 17a-4(e)(5). 18
To aggregate the entire burden of Rule 17a-3 into one information collection (and OMB
control number), the Commission is adding the annual burden hours for proposed paragraph
(a)(25) of Rule 17a-3 into the Rule 17a-3 information collection. Proposed Rule 17a-3(a)(24)
would require SEC-registered broker-dealers to make a record indicating the date that a
relationship summary was provided to each customer and to each prospective customer who
subsequently becomes a customer. Proposed Rule 17a-3(a)(25) would require a broker-dealer to
make a record of all information collected from and provided to the retail customer pursuant to
Proposed Regulation Best Interest. We understand that broker-dealers currently make records of
relevant customer investment profile information, and we therefore assume that no additional
record-making obligations would arise as a result of broker-dealers’ or their registered
representatives’ collection of information from retail customers. 19
In addition, the proposed amendment to Rule 17a-3(a)(25) would require a broker-dealer,
“for each retail customer to whom a recommendation of any securities transaction or investment
strategy involving securities is or will be provided,” to make a record of the “identity of each
natural person who is an associated person, if any, responsible for the account.” We understand
that broker-dealers likely make such records in the ordinary course of their business pursuant to
Exchange Act Rules 17a-3(a)(6) and (7). However, we are assuming, for purposes of
compliance with proposed Rule 17a-3(a)(25), that broker-dealers would need to create a record,
or modify an existing record, to identify the associated person, if any, responsible for the account
in the context of proposed Regulation Best Interest.
17

18

19

This estimate is based on the following calculation: (494,399 total licensed representatives
(including representatives of investment advisers)) x (12% (the percentage of total licensed
representatives who are standalone investment adviser representatives)) = 59,328 representatives
at standalone investment advisers. To isolate the number of representatives at standalone brokerdealers and dually-registered firms, we have subtracted 59,328 from 494,399, for a total of
435,071 retail-facing, licensed representatives at standalone broker-dealers or dually-registered
firms.
Unless otherwise noted, for purposes of this supporting statement, we use the term “registered
representatives” to refer to associated persons of broker-dealers who are registered, have series 6
or 7 licenses, and are retail-facing, and we use the term “dually-registered representatives of
broker-dealers” to refer to registered representatives who are dually-registered and are associated
persons of a standalone broker-dealer (who may be associated with an unaffiliated investment
adviser) or a dually-registered broker-dealer.
The PRA burdens and costs arising from the requirement that a record be made of all information
provided to the retail customer are accounted for in proposed Regulation Best Interest and the
Relationship Summary Proposal. With respect to the requirement that a record be made of all
information from the retail customer, we believe that proposed Rule 17a-3(a)(25) would not
impose any new substantive burdens on broker-dealers. As discussed in the Regulation Best
Interest Proposing Release, we believe that the obligation to exercise reasonable diligence, care,
skill and prudence would not require a broker-dealer to collect additional information from the
retail customer beyond that currently collected in the ordinary course of business even though a
broker-dealer’s analysis of that information and any resulting recommendation would need to
adhere to the enhanced best interest standard of Regulation Best Interest.

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Based on our understanding of current broker-dealer practices, we assume that brokerdealers would satisfy the record-making requirement of the proposed amendment to Rule 17a3(a)(25) by amending an existing account disclosure document to include this information. We
believe that the inclusion of this information in an account disclosure document would require,
on average, approximately 1 hour per year for outside counsel at small broker-dealers, at an
average rate of $472/hour, for an annual cost of $472 for each small broker-dealer to update an
account disclosure document. The projected initial, aggregate cost for small broker-dealers
would be $378,544. 20 For broker-dealers that are not small entities, we estimate that the initial
burden would be 2 hours for each broker-dealer: 1 hour for internal compliance personnel and 1
hour for internal legal personnel. We therefore believe the initial one-time internal aggregate
burden for broker-dealers that are not small entities would be approximately 4,110 burden hours
or 1,370 annualized burden hours. 21 Finally, we estimate it would require an additional 0.04
hours for the registered representative responsible for the information (or other clerical
personnel) to fill out that information in the account disclosure document, for an approximate
total aggregate initial burden of 3,808,000 hours, or approximately 1,333 hours per broker-dealer
for the first year after the rule is in effect. 22
We do not believe that the identity of the registered representative responsible for the
retail customer’s account would change. Accordingly, we believe that there are no ongoing costs
and burdens associated with this record-making requirement of the proposed amendment to Rule
17a-3(a)(25).
In connection with Rule 17a-3(a)(24), Commission staff has estimated that the proposed
new rule would result in an incremental burden increase of 0.1 hours annually, for each of the
broker-dealers required to prepare and deliver the relationship summary, to record the date that a
relationship summary was provided to each existing and new customer. The incremental hour
burden for broker-dealers to record this information would be approximately 286 hours in
aggregate. 23
In total, we estimate the aggregate burden attributed to Rules 17a-3(a)(24) and 17a3(a)(25) to be 286 burden hours and 3,812,110 burden hours, respectively, which would be in
20

21

22

23

This estimate is based on the following calculation: (1 hour per small broker-dealer) x (802 small
broker-dealers) x ($472/hour) = $378,544 in aggregate costs, or $157.33 per year per small
broker-dealer when annualized over three years.
This estimate is based on the following calculation: (2 burden hours per broker-dealer) x (2,055
large broker-dealers) = 4,110 aggregate burden hours/3=1,370 aggregate burden hours
annualized.
These estimates are based on the following calculations: (0.04 hours per customer account) x
(95.2 million retail customer accounts) = 3,808,000 aggregate burden hours. Conversely,
(3,808,000 burden hours) / (2,857 broker-dealers) = 1,333 hours per broker-dealer. The costs and
burdens associated with the delivery of the amended account disclosure document are addressed
elsewhere in the supporting statement for Regulation Best Interest , thus, they were not included
in this section of the analysis. The Regulation Best Interest collection OMB control number is
[•].
2,857 broker-dealers x 0.1 hours = approximately 286 hours.

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addition to the burden hours previously summarized in the most recent Rule 17a-3 PRA
Supporting Statement (as listed below):
Summary of Hourly Burdens
Name of Information Collection

Type of Burden

Number of
Respondents

Annual
Responses per
Respondent

Hourly
Burden per
Response

Annual
Burden for all
Respondents

Records to be Made by Certain Exchange
Members, Brokers and Dealers

Recordkeeping

4104

249

1

1,021,896

Rule 17a-3(a)(12) & (19)

Recordkeeping

4104

1

0.50

2,052

Rule 17a-3(a)(20-22)

Recordkeeping

4104

1

0.1666

684

Rule 17a-3(a)(17)(i)(B)(1) - Large BD

Recordkeeping &
Third Party
Disclosure

47

640,006

0.0250

752,007

Rule 17a-3(a)(17)(i)(B(1) - Small BD

Recordkeeping &
Third Party
Disclosure

4040

98

0.1166

46,233

Rule 17a-3(a)(17)(i)(B)(2) & (3) - Large

Recordkeeping &
Third Party
Disclosure

47

224,002

0.0833

877,341

4040

34.32376

0.1666

23,113

BD

Recordkeeping &
Third Party
Disclosure

Rule 17a-3(a)(23) Part I

Recordkeeping

462

1

33.33

15,400

Rule 17a-3(a)(23) Part II

Recordkeeping

462

1

45

20,790

Rule 17a-3(a)(16)

Recordkeeping

27

1

150

4,050

Rule 17a-3(a)(24)

Recordkeeping

2,857

1

0.1

286

Rule 17a-3(a)(25)

Recordkeeping

2,055

1

2

4,110

Rule 17a-3(a)(25)

Recordkeeping

2,857

33,322

0.04

3,808,000

BD
Rule 17a-3(a)(17)(i)(B(2) & (3) - Small

13.

Costs to Respondents

We do not expect respondents to incur external costs in connection with Rule 17a3(a)(24). The total cost associated with Rule 17a-3(a)(25) is approximately $378,544 per year. 24

24

This estimate is based on the following calculation: (1 hour per small broker-dealer) x (802 small
broker-dealers) x ($472/hour) = $378,544 in aggregate costs.

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14.

Costs to Federal Government

There will be no additional costs to the Federal Government.
15.

Changes in Burden

The annual burden increased by 3,812,396 burden hours for all respondents or
approximately 1,334 burden hours per respondent due to an increase in the obligations imposed
on respondents, despite a decrease in the number of customer accounts held by broker-dealers.
The annual costs increased by $378,544 per year for small broker-dealers due to inflation and
increases in compliance costs related to ongoing systems and development costs. We do not
believe that the annual costs for large broker-dealers would increase.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

The Commission is not seeking approval to omit the expiration date.
18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

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