PRA Supporting Statement (17a-4)

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for Rule 17a-4
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”). 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
1940, adopted Rules 17a-3 and 17a-4 (one of the “Books and Records Rules”), 3 which codified
and specified minimum standards with respect to business records that broker-dealers must
create and maintain. Rule 17a-3 requires exchange members, brokers and dealers to make and
keep current certain records relating to a broker’s or dealer’s financial condition and operations.
Rule 17a-4 requires broker-dealers to preserve, for prescribed periods of time, certain records
required to be created under Rule 17a-3 and certain other Commission rules. In addition, Rule
17a-4 requires broker-dealers to preserve other records that may be created or received by the
broker-dealer in the ordinary course of its business for prescribed periods of time. This
collection of information requirement was most recently approved without change by OMB on
October 28, 2016, and expires on October 31, 2019.

1
2
3

15 U.S.C. 78q(a).
15 U.S.C. 78w(a).
17 CFR 240.17a-3 and 17 CFR 240.17a-4.

As part of proposed Regulation Best Interest, the Commission is proposing to amend
Rule 17a-4 by revising paragraph (e)(5). 4 In addition, as part of the separate Commission
proposal, of new Rule 17a-14 and Form CRS, the Commission is proposing to add paragraph
(e)(10) to Rule 17a-4. 5 To aggregate the entire burden of Rule 17a-4 into one information
collection (and OMB control number), the Commission is amending the annual burden hours for
paragraph (e)(5) of Rule 17a-4 into this information collection. The Rule 17a-4 information
collection OMB control number is 3235-0279.
2.

Information Collection Purpose and Use

The purpose of requiring that broker-dealers maintain the records specified in Rule 17a-4
is to help ensure that examiners and other representatives of the Commission, state securities
regulatory authorities, and the self-regulatory organizations (“SROs”) have access to the
information and documents necessary 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. Without Rule 17a-4, it
would be impossible for the Commission to determine whether a broker-dealer that chose not to
preserve records was in compliance with these rules. Such a situation would not be in the public
interest and would be detrimental to investors and the financial community as a whole. In
addition, records made and retained in accordance with proposed Rule 17a-3(a)(25) 6 and the
proposed amendment to Rule 17a-4(e)(5) would assist a broker-dealer in supervising and
assessing internal compliance with proposed Regulation Best Interest. 7 Records made and

4

5

6

7

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 relating to its collection of information.
On April 18, 2018, the Commission issued a release proposing new Form CRS and Rule 17a-14
under the Exchange Act. 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, IA-4888 (Apr. 18, 2018) (“Relationship Summary Release”)
(proposing 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). The OMB control
number for the supporting statement for the Relationship Summary Release is [•].
The Rule 17a-3 information collection OMB control number is 3235-0033.
As part of proposing Regulation Best Interest, proposed rule 17a-3(a)(25) would require brokerdealers 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.
Because the record-making obligations are being adopted under Rule 17a-3, which has its own

retained in accordance with proposed Rule 17a-3(a)(24) and the proposed addition of paragraph
(e)(1) to Rule 17a-4 would assist a broker-dealer in supervising and assessing internal
compliance with proposed Rule 17a-14 and Form CRS. 8
The proposed amendment of paragraph (e)(5) to Rule 17a-4 would require that all records
made pursuant to the proposed amendment to Rule 17a-3(a)(25) must be retained “in each case
until at least six years after the earlier of the date the account was closed or the date on which the
information was collected, provided, replaced, or updated.”
The proposed addition of paragraph (e)(10) to Rule 17a-4 would require that all records
made pursuant to the proposed amendment to Rule 17a-3(a)(24), as well as a record of each
relationship summary, must be retained until at least six years after such record or Form CRS is
created.
3.

Consideration Given to Information Technology

Rule 17a-4 specifically allows brokers and dealers to use electronic storage media to
comply with the record-keeping requirements under the Securities and Exchange Act of 1934.
The proposed rules do not prescribe particular forms or methods of compliance for brokerdealers or their associated person, to allow maximum flexibility with respect to new technologies
as they develop.
4.

Duplication

.
The Commission evaluates reporting, recordkeeping and third-party disclosure obligation
requirements for duplication, and reevaluates them whenever it proposes a rule or a change in a rule.
No other rule explicitly requires broker-dealers and their financial professionals to provide the same
information that is required by the amendments to rule 17a-4. Therefore, we believe there is no
duplication.

5.

Effects on Small Entities

The Regulatory Flexibility Act (“RFA”) 9 requires federal agencies, in
promulgating rules, to consider the impact of those rules on small entities. Section 603(a) 10 of

8

9
10

OMB Control Number, a separate supporting statement is being submitted to address that
amendment.
As part of proposing Rule 17a-14 and Form CRS, 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. Because
the record-making obligations are being adopted under Rule 17a-3, which has its own OMB
Control Number, a separate supporting statement is being submitted to address that amendment.

5 U.S.C. 601 et seq.
5 U.S.C. 603(a).

the Administrative Procedure Act, 11 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.” 12 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, 13 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. 14
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 preserved by Rule 17a-4 vary
proportionately with the volume and complexity of the broker-dealer's business.
6.

Consequences of Not Conducting Collection

Rule 17a-4 is a record preservation rule. Without Rule 17a-4, the proposed amendment
to Rule 17a-4(e)(5), and the addition of Rule 17a-4(e)(10), it would be impossible for the
Commission to determine whether a broker-dealer that chose not to preserve records was in
compliance with the Commission’s antifraud and anti-manipulation rules, financial responsibility
program, proposed Regulation Best Interest, proposed Rule 17a-14 and Form CRS, and other
Commission, SRO, and State laws, rules, and regulations. Such a situation would not be in the
public interest and would be detrimental to investors and the financial community as a whole.

11
12

13
14

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).

7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

Certain provisions of Rule 17a-4 require respondents to retain records for more than three
years. In addition, Rule 17a-4(d) requires that a broker-dealer maintain specified organizational
documents for the life of the enterprise and any successor enterprise.
Under Rule 17a-4(e)(5), broker-dealers are required to maintain and preserve in an easily
accessible place all account information required pursuant to Rule 17a-3(a)(17) for six years. 15
The proposed amendment to Rule 17a-4(e)(5) would require a broker-dealer to maintain all
account record information required pursuant to Rule 17a-3(a)(17) and all records required
pursuant to proposed Rule 17a-3(a)(25), in each case until at least six years after the earlier of the
date the account was closed or the date on which the information was collected, provided,
replaced, or updated. Finally, the proposed addition of Rule 17a-4(e)(10) would require a
broker-dealer to maintain all records required pursuant to Rule 17a-3(a)(24) and a record of each
Form CRS, until at least six years after such record or Form CRS is created.
These extended retention periods are necessary with respect to the records itemized above
in order to provide regulators with sufficient time to conduct comprehensive inspections and
investigations. Due to budget constraints, regulators only examine broker-dealers and office
locations periodically. Further, certain of these documents do not become obsolete (e.g.,
organizational documents).
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 proposed Regulation Best
Interest, which includes Rule 17a-4(e)(5). A copy of the release is 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 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

The Commission did not provide any payment or gift to respondents.
10.

Confidentiality

The records required by Rule 17a-4 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
15

See 17 CFR 240.17a-4.

(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

To aggregate the entire burden of Rule 17a-4 into one information collection (and OMB
control number), the Commission is adding the estimated one-time initial burden, as well as the
estimated annual ongoing burden of the proposed amendment to Rule 17a-4(e)(5) and proposed
new Rule 17a-4(e)(10), into this information collection. As explained in greater detail below, the
Commission estimates that each broker-dealer subject to Regulation Best Interest will incur a
one-time initial burden of 5,554 hours 16, as well as an ongoing annual burden of 1,111 hours 17 as
a result of the proposed amendment to Rule 17a-4(e)(5).
For each record made pursuant to proposed Rule 17a-3(a)(25), the proposed amendment
to Rule 17a-4(e)(5) would require broker-dealers to retain “all account record information
required pursuant to [proposed Regulation Best Interest] and all records required pursuant to
[proposed Regulation Best Interest], in each case until at least six years after the earlier of the
date the account was closed or the date on which the information was collected, provided,
replaced, or updated.” The Commission believes the following records would likely need to be
retained pursuant to proposed Rule 17a-3(a)(25): (1) a standardized Relationship Summary
document, developed in accordance with the rules and guidance contained in the Relationship
Summary Proposal; 18 (2) existing account disclosure documents; (3) a comprehensive fee

16

17

18

This estimate is based on the following calculation: (5 documents per customer account) x (95.2
million retail customer accounts) x (2 minutes per document) / 60 minutes = 15,866,667
aggregate burden hours, or 5,288,889 annualized over three years. 15,866,667 aggregate burden
hours/ 2,857 broker-dealers with retail customers=5,554 burden hours per broker-dealer, or
1851.33 annualized over three years.
This estimate is based on the following calculation: (40% update for fee schedule x 2 minutes per
document) + (40% update for conflicts disclosure x 2 minutes)=3,173,334 ongoing burden hours.
3,173,334/2,857 broker-dealers with retail customers=1,111 annual burden hours per brokerdealer.
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,
IA-4888, File No. S7-08-18 (“Relationship Summary Proposal”).

schedule; (4) disclosures identifying material conflicts; and (5) a separate disclosure regarding
capacity, scope and type of services. 19
Based on the assumption that broker-dealers will rely on existing infrastructures to satisfy
the recordkeeping obligations of Regulation Best Interest and the proposed amendment to Rule
17a-4(e)(5), we believe the burden for broker-dealers to add new documents or modify existing
documents to the broker-dealer’s existing retention system would be approximately 15.9 million
burden hours for all broker-dealers, assuming a broker-dealer would need to upload or file each
of the five account documents discussed above for each retail customer account. 20
We estimate that the approximate ongoing burden associated with the recordkeeping
requirement of proposed amendment to Rule 17a-4(e)(5) is 3.17 million burden hours per year. 21
Rule 17a-4(e)(10) would require broker-dealers subject to Rule 17a-14 and Form CRS to
maintain each record made pursuant to Rule 17a-3(a)(24) for at least six years. We estimate that
this will increase the burden for each such broker-dealer by 0.10 hours, or an estimated aggregate
burden of 285.7 hours on an annual basis. 22
13.

Costs to Respondents

The Commission does not believe there would be additional one-time internal or external
costs relating to the uploading or filing of the documents required by the proposed amendment to
Rules 17a-4(e)(5) or 17a-4(e)(10), nor does the Commission believe that the ongoing costs
associated with ensuring compliance with the retention schedule would change materially from
the current costs of ensuring compliance with existing Rule 17a-4. 23

19

20

21

22
23

While we estimate broker-dealers will likely need to retain these five documents, there may be a
different number of disclosure documents related to Regulation Best Interest based on different
facts and circumstances relating to the broker-dealer.
This estimate is based on the following calculation: (5 documents per customer account) x (95.2
million retail customer accounts) x (2 minutes per document) / 60 minutes = 15,866,667
aggregate burden hours.
This estimate is based on the percentage of account records we expect would be updated each
year as described in Section V.B.2, of the Regulation Best Interest Proposing Release, and the
following calculation: (40% of fee schedules x 95.2 million retail customer accounts) x (2
minutes per document) + (40% of conflict disclosure forms x 95.2 million retail customer
accounts) x (2 minutes per document) + (20% of account opening documents x 95.2 million retail
customer accounts) x (2 minutes per document) = 3,173,334 aggregate ongoing burden hours.
2,857 broker-dealers x 0.1 hours = 285.7 hours in aggregate.
However, the Commission requested comment on this assumption regarding both the frequency
with which a broker-dealer would need to collect, provide, replace, or update the records made
pursuant to the proposed amendment to Rule 17a-3(a)(25), and also on whether there would be
additional costs relating to ensuring compliance with record retention and retention schedules
pursuant to Rule 17a-4 in the Regulation Best Interest Proposing Release.

14.

Costs to the Federal Government

The federal government does not incur a cost for this collection of information since it
relates to a recordkeeping burden for the respondents.
15.

Changes in Burden

The annual recordkeeping burden would increase by 8,462,498 burden hours for all
respondents or 2,962.02 burden hours per respondent as a result of the amendment to Rule 17a4(e)(5) and addition of Rule 17a-4(e)(10). As stated above, the Commission does not believe
broker-dealers would incur any initial one-time or ongoing costs related to the amendments to
Rule 17a-4.
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.