ULT FINAL DGL COMBINED REVISED 17a-3 supporting statement (Draft K - 10.01.2019) clean

ULT FINAL DGL COMBINED REVISED 17a-3 supporting statement (Draft K - 10.01.2019) clean.pdf

Rule 17a-3; Records to be Made by Certain Exchange Members, Brokers and Dealers

OMB: 3235-0033

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Supporting Statement
for the Paperwork Reduction Act Information Collection Submission for
Rule 17a-3
OMB Control No. 3235-0033
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 Securities and Exchange Commission (“Commission” or “SEC”) 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 NSMIA prohibits any State from establishing books and records rules for
broker-dealers that differ from, or are in addition to, the Commission's rules, and also requires
the Commission to consult periodically with the States concerning the adequacy of the
Commission’s books and records rules. 6 The 2001 Amendments expanded the types of records
that broker-dealers must create to include additional records necessary for State examiners to
1

15 U.S.C. § 78q(a).

2

15 U.S.C. § 78w(a).

3

17 CFR 240.17a-3.

4

Exchange Act Release No. 2304 (Nov. 13, 1939).

5

Pub.L.No. 104-290, 110 Stat. 3416 (1996).

6

Exchange Act Section 15(h), 15 U.S.C. § 78o(h).

1

review for sales practice violations at office locations, and were designed to assist regulators,
particularly State securities regulators, in conducting effective examinations. 7 On June 5, 2019,
the Commission adopted Rule 151-1 under the Securities Exchange Act of 1934 (“Exchange
Act”) establishing a standard of conduct for broker-dealers and natural persons who are
associated persons of a broker-dealer (unless otherwise indicated, together referred to as “brokerdealer” or “BD”) when making a recommendation of any securities transaction or investment
strategy involving securities to a retail customer (“Regulation Best Interest”). 8 At the same time,
the Commission adopted Exchange Act Rule 17a-14 (CFR 240.17a-14) and Form CRS (17 CFR
249.640) under the Exchange Act. 9
As part of new Rule 17a-14 and Form CRS and Regulation Best Interest, the Commission
recently amended Rule 17a-3 by adding new paragraphs (a)(24) and (a)(35), respectively.
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.
3.

Consideration Given to Information Technology

The Commission believes that improvements in telecommunications and data processing
technology may reduce any burdens that result from Rule 17a-3. Broker-dealers are not
prevented by Rule 17a-3 from using computers or other mechanical devices to generate the
records required under the Rule.
4.

Duplication

Rule 17a-3 was drafted and amended to codify SRO record-keeping requirements and the
record-keeping practices of prudent broker-dealers. Because most broker-dealers already create
7

See Exchange Act Release No. 37850 (October 22, 1996), 61 FR 55593 (October 28, 1996) (“Proposing
Release”).

8

See Securities Exchange Act Release No. 86031 (Jun. 5, 2019), 84 FR 33669 (July 12, 2019); see also
Securities Exchange Act Release No. 83062 (Apr. 18, 2018) [83 FR 21574] (May 9, 2018) (“Regulation
Best Interest Adopting Release”).

9

See Form CRS Relationship Summary; Amendments to Form ADV Exchange Act Release No. 86032,
Advisers Act Release No. 5247, File No. S7-08-18 (June 5, 2019), 84 FR 33492 (July 12, 2019). See also
Release No. 34-83063, IA-4888, File No. S7-08-18 (Apr. 18, 2018), 83 FR 23848 (May 23, 2018).

2

many of the records required by Rule 17a-3 either voluntarily or pursuant to SRO requirements,
no duplication of such information is apparent.
5.

Effect on Small Entities

The books and records required under Rule 17a-3 are normally created by small brokerdealers. Since small broker-dealers utilize processes that are more manual in nature, while large
broker-dealers use more automated processes, the Commission has estimated some of the time
factors for small broker-dealers to be higher, as described below.
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 the 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. If a broker-dealer does not
make these records, or it makes these records less frequently, the level of investor protection will
be reduced. 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 required Federal Register notice with a 60-day comment period soliciting comments
on this collection of information was published. No public comments were received.
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.

3

11.

Sensitive Questions

The information collection collects a broad range of PII related to an associated person of
the broker-dealer. The broker-dealer is required to maintain the information. Upon Commission
request, the information collection is manually submitted via mail and email and collected in
paper form. The primary retrieval method is broker-dealer firm name and not a personal
identifier. Based on the business practice of handling the information collection, the collection
does not constitute a system of records under the Privacy Act and does not require a PIA of the
E-Government Act of 2002. However, the SEC has privacy administrative, technical, and
physical controls in place to protect the PII that the Commission requests. The information
collected via email or scanned pdf documents are stored in a database on the GSS system that is
covered under the GSS Rev.2 PIA. Notice to the public of the collection of the information and
the agency’s handling practices are described in System of Records Notice (SORN) SEC-70
“SEC’s Trading and Markets Records.” The SEC-70 SORN, published on February 15, 2018, is
provided as a supplemental document and is also available at https://www.sec.gov/privacy.
12.

Information Collection Burden

All registered broker-dealers are subject to Rule 17a-3. Rule 17a-3 establishes certain
records that must be made by all broker-dealers, while other records must be made only by
certain broker-dealers. All of these burdens are recordkeeping burdens.
As of December 31, 2018, there were 3,764 broker-dealers registered with the Commission.
The Commission estimates that the aggregate hour burden of the requirements associated with Rule
17a-3 is approximately 5,317,241 hours, calculated as follows:
Records to be Made by All Broker-Dealers
Rule 17a-3 - Records to be made by certain exchange members, brokers and dealers
While recordkeeping requirements will vary based on the size and complexity of the brokerdealer, the Commission estimates that one hour a day is the average amount of time needed by a
broker-dealer to comply with the overall requirements of Rule 17a-3, in addition to the separate
burdens described below. The number of working days per year is 249, and as a result the total
estimated burden for broker-dealers with respect to Rule 17a-3 generally is 937,236 hours per
year. 10 These hours are recordkeeping burdens.
Rule 17a-3(a)(12, 19)
In addition to the hour burden estimate for Rule 17a-3 generally, the Commission also
believes that paragraphs (a)(12) and (19) of Rule 17a-3 will impose specific burdens on brokerdealers. Paragraphs (a)(12) and (a)(19) of Rule 17a-3 require that a broker-dealer create certain
records regarding its associated persons. 11 The Commission estimates that each broker-dealer
10

3,764 (the number of broker-dealers as of December 31, 2018) multiplied by 1 hour per day multiplied by
249 working days equals 937,236 hours.

11

These records that a broker-dealer is required to make regarding the broker-dealer’s associated persons
include: 1) all agreements pertaining to the associated person’s relationship with the broker-dealer and a

4

spends, on average, approximately 30 minutes each year to ensure that it is in compliance with
these requirements, resulting in a total annual compliance burden of about 1,882 hours. 12 These
hours are recordkeeping burdens.
Rule 17a-3(a)(20-22)
Paragraphs (a)(20)–(22) of Rule 17a-3 require broker-dealers to make, among other
things, records documenting the broker-dealer’s compliance, or that the broker-dealer has
adopted policies and procedures reasonably designed to establish compliance, with applicable
federal regulations and SRO rules that require approval by a principal of the broker-dealer of any
advertisements, sales literature or other communications with the public. Moreover, these rules
require broker-dealers to create a record of the personnel responsible for establishing compliance
policies and procedures and of the personnel capable of explaining the types of records the
broker-dealer. 13 The Commission estimates that, on average, each broker-dealer will spend 10
minutes each year to ensure compliance with these requirements, yielding a total burden of about
627 hours. 14 These are recordkeeping burdens.
Rule 17a-3(a)(17)
Estimating the paperwork burden associated with paragraph (a)(17) requires a more
complicated formula to calculate the compliance burden because it is based on the number of
customer accounts for which a broker-dealer must collect this information as opposed to the
number of broker-dealers. In addition, the Commission understands that large broker-dealers
have more automated processes to collect and create these records than smaller broker-dealers,
and has factored this into its estimates.
As of the end of 2018, 3,764 registered broker-dealers that filed the FOCUS Schedule I
Reports on December 31, 2018 reported that they maintained a total of 143,333,278 customer
accounts. Forty-five (45) of those broker-dealers reported that they maintained over 100,000
accounts each (for purposes of this Supporting Statement, the “Large Broker-Dealers”), and the
remaining 3,719 broker-dealers maintained less than 100,000 customer accounts each (for
purposes of this Supporting Statement, the “Small Broker-Dealers”). The Large Broker-Dealers
reported that they held a total of 142,049,978 customer accounts (or 99% of the total customer
accounts reported), with the Small Broker-Dealers holding the remaining 1,283,300 customer
accounts (or 1% of the total customer accounts reported). The Commission estimates that
approximately 27.7% of the 143,333.278 total customer accounts would be excluded from the
provisions of 17a-3(a)(17) because the accounts are either (i) not accounts of natural persons, (ii)
summary of each associated person’s compensation arrangement (17 CFR 240.17a-3(a)(19)(ii)), 2) a record
delineating all identification numbers relating to each associated person (17 CFR 240.17a-3(a)(12)(ii)), 3) a
record of the office at which each associated person regularly conducts business (17 CFR 240.17a3(a)(12)(iii)), and 4) a record as to each associated person listing transactions for which that person will be
compensated (17 CFR 240.17a-3(a)(19)(i)).
12

(3,764 broker-dealers x 30 minutes) / 60 minutes.

13

17 CFR 240.17a-3(a)(20); 17 CFR 240.17a-3(a)(21); and 17 CFR 240.17a-3(a)(22).

14

(3,764 broker-dealers x 10 minutes) / 60 minutes.

5

inactive, or (iii) accounts for which the broker-dealer does not have a suitability requirement. 15
Accordingly, the total number of active customer accounts regarding which broker-dealers would
need to provide customers with account information is approximately 103,629,960 (102,593,660,
or 99%, held by Large Broker-Dealers and 1,036,300, or 1%, held by Small Broker-Dealers).
Rule 17a-3(a)(17)(i)(B)(1) – Large BD; and Rule 17a-3(a)(17)(i)(B)(1) – Small BD
The Commission estimates that broker-dealers will be required to provide customer
account information to approximately 34,543,320 customers per year to comply with paragraph
(a)(17)(i)(B)(1). 16 Approximately 34,197,887 will be customers of Large Broker-Dealers, 17 and
approximately 345,433 will be customers of Small Broker-Dealers. 18 Further, the Commission
estimates that this will take Large Broker-Dealers an average of 1½ minutes per account, or a
total of 854,947 hours per year for all Large Broker-Dealers, 19 and that it will take Small BrokerDealers an average of 7 minutes per account, or a total of 40,301 hours per year for all Small
Broker-Dealers. 20 Thus, the estimated total burden on the industry to comply with the paragraph
(a)(17)(i)(B)(1) requirement to provide account information to customers when an account is
opened and periodically thereafter is 895,248 hours per year. 21 These hours are recordkeeping
and third party disclosure burdens, with an assumption that the burden is split evenly between the
two burden types.
Rule 17a-3(a)(17)(i)(B)(2) + (3) – Large BD; and Rule 17a-3(a)(17)(i)(B)(2) + (3) –
Small BD
If a customer provides a broker-dealer with updated account record information, the
broker-dealer must, pursuant to paragraphs (a)(17)(i)(B)(2) and (3), update the customer’s
account information and send the revised account information to the customer to verify its
accuracy. 22 The Commission estimates that approximately 20% of the customers from whom
information is requested will update their account records, resulting in 6,908,664 updated
account records each year. 23 In addition, the Commission estimates that 5% of active customer
accounts, or 5,181,498, 24 will initiate changes to their account records on a yearly basis, just as
15

See Rule 17 CFR 240.17a-3(a)(17)(i)(D). The Commission arrived at this number using estimates provided
by the firms (in their comment letters and otherwise) as to how many of their accounts would fit in to one
or more of these categories.

16

(103,629,960 x (1 every 3 years), or, in other words, (103,629,960 / 3) because the broker-dealer must send
each customer a copy of his or her account record information once every three years.

17

34,543,320 account records x 99% = 34,197,887 account records, or 759,953.0444 account records per
Large Broker-dealer (34,197,887 account records / 45).

18

34,543,320 account records x 1% = 345,433, or approximately 93 account records per Small Broker-dealer
(345,433 / 3,719).

19

(34,197,887 x 1.5 minutes / 60 minutes) = 854,947 hours per year.

20

(345,433 x 7 minutes / 60 minutes) = 40,301 hours per year.

21

(854,947 hours + 40,301 hours) = 895,248 hours.

22

17 CFR 240.17a-3(a)(17)(B)(2) and (3).

23

(34,543,320 x 20%) = 6,908,664.

24

(103,629,960 x 5%) = 5,181,498.

6

they do now, with no prompting from any account record mailing. The total number of updates,
therefore, will be approximately 12,090,162. 25 The Commission estimates that it would take, on
average, 5 minutes for Large Broker-Dealers to update each account and 10 minutes 26 for Small
Broker-Dealers to update each account, resulting in an additional aggregate burden of 1,017,660
hours per year (997,518 for all Large Broker-Dealers and 20,142 for all Small Broker-Dealers) to
update account record information and provide the new account information to customers as
required by paragraphs (a)(17)(i)(B)(2) and (3). 27 These hours are recordkeeping and third party
disclosure burdens, with an assumption that the burden is split evenly between the two burden
types.
Rule 17a-3(a)(23) Part I
Paragraph (a)(23) of Rule 17a-3, requires certain broker-dealers to make and keep current
a record documenting credit, market, and liquidity risk management controls established and
maintained by the broker-dealer to assist it in analyzing and managing the risks associated with
its business activities. The Commission estimates that a broker-dealer spends, on average,
approximately 100 hours of employee resources to comply with this requirement to ensure its
market, credit, and liquidity risk controls are documented. Based on FOCUS Report data, as of
December 31, 2015, the Commission estimates there are approximately 456 broker-dealers that
are subject to paragraph (a)(23). 28 Therefore, the Commission estimates that the total one-time
recordkeeping burden to all broker-dealers will be approximately 45,600 hours, or 15,200 hours
amortized over three years. 29
Rule 17a-3(a)(23) Part II
In addition to the one-time hour burden, based on similar collections of information
requiring the documentation of risk management controls, broker-dealers required to comply
with paragraph (a)(23) likely will incur annual hour burdens. 30 The Commission estimates that a
25

(6,908,664 + 5,181,498) = 12,090,162.

26

This estimate takes into account the 1½ and 7 minutes it would take Large and Small Broker-dealers,
respectively, to provide this updated account information to customers, and the 3.5 minutes and 3 minutes it
would take Large and Small Broker-dealers, respectively, to receive the returned data and input any
changes into the account record. The estimated total minutes for updating and providing this information to
customers of 5 minutes for Large Broker-dealers and 10 minutes for Small Broker-dealers were taken from
a comment letter to the 2001 Amendments.

27

((12,090,162 account records x 99%) x (5 minutes / 60 minutes)) + ((12,090,162 account records x 1%) x
(10 minutes / 60 minutes)).

28

This estimate is based on the number of firms that have $1,000,000 in credits or $20,000,000 in capital as
of December 31, 2018.

29

456 broker-dealers x 100 hours = 45,600 hours. For purposes of this supporting statement, the one-time
burden annualized over the three year approval period is 15,200 (45,600/3), with an average hour burden
per firm of 33.33 hours (15,200/456 firms).

30

See Risk Management Controls for Brokers or Dealers with Market Access; Final Rule, Exchange Act
Release No. 63241 (Nov. 3, 2010), 75 FR 69792, 69815 (Nov. 15, 2010). See also Capital, Margin, and
Segregation Requirements for Security-Based Swap Dealers and Major Security-Based Swap Participants
and Capital Requirements for Broker-Dealers, Exchange Act Release 68071, 77 FR at 70295 and 70297.

7

broker-dealer spends approximately 45 hours per year to ensure its compliance with Paragraph
(a)(23), for a total annual recordkeeping burden on the industry of 20,520 hours. 31
Rule 17a-3(a)(16)
Paragraph (a)(16) of Rule 17a-3 requires any broker-dealer that sponsors an internal brokerdealer system to make and keep current certain records relating to such system. The Commission
estimates that paragraph (a)(16) of Rule 17a-3 imposes an annual burden of 27 hours per year per
internal broker-dealer system to create the requisite records. The Commission estimates that there
are approximately 200 internal broker-dealer systems,32 resulting in a total annual recordkeeping
burden of 5,400 hours.33
Records to be Made by Certain Broker-Dealers: Rules 17a-3(a)(24) and 17a-3(a)(35)
In June 2019, the Commission amended Rule 17a-3 by adding paragraphs (a)(24) and
(a)(35). These revisions to the collection of information were approved by OMB on October 3,
2019. Because these revisions were approved so recently, the Commission does not have any
changes to the estimated burdens for these rules; however, these burdens are summarized below
as part of the extension request for the currently approved collection in Rule 17a-3 (3235-0033).
Based on data obtained from Form BR, the Commission preliminarily believes that
approximately 73.5% of registered broker-dealers, or 2,766 broker-dealers, have retail customers
and therefore would likely be subject to Rules 17a-3(a)(24) and 17a-3(a)(35),
Rule 17a-3(a)(24):
Rule 17a-3(a)(24) requires certain SEC-registered broker-dealers to make a record
indicating the date that a Form CRS was provided to each customer and to each prospective
customer.
The Commission estimates that it would take each broker-dealer from 0.1 hours to 0.5 hours to
create the records required by paragraph (a)(24) of rule 17a-3. The incremental hour burden for
broker-dealers to create the records required by paragraph (a)(24) of rule 17a-3 as adopted will
therefore be 1,383 hours. 34
Rule 17a-3(a)(35)
31

456 broker-dealers x 45 hours = 20,520 hours. The 45 per hour annual estimate is based on a similar
collection of information. See Risk Management Controls for Brokers or Dealers with Market Access;
Final Rule, Exchange Act Release No. 63241 (Nov. 3, 2010), 75 FR 69792, 69815 (Nov. 15, 2010).

32

The Commission believes that most over-the-counter (“OTC”) market makers maintain an internal brokerdealer system. In 2010, the Commission estimated that there are approximately 200 OTC market makers
responsible for more than 1% of the trading volume in an exchange-traded security. See See Disclosure of
Order Handling Information, Exchange Act Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19,
2018).

33

27 hours x 200 internal broker-dealer systems = 5,400 hours.

34

2,766 broker-dealers x 0.5 hours annually = 1,383 annual hours for recordkeeping

8

Rule 17a-3(a)(35) requires a broker-dealer to make a record of all information collected
from and provided to the retail customer pursuant to Regulation Best Interest, as well as the
identity of each natural person who is an associated person of a broker or dealer, if any,
responsible for the account. This requirement applies with respect to each retail customer to
whom a recommendation of any securities transaction or investment strategy involving securities
is provided. The burdens associated with each component of this rule are estimated as follows:
Rule 17a-3(a)(35): Record of Information Collected From and Provided to the Retail Customer
Pursuant to Regulation Best Interest
The Commission understands that broker-dealers currently make records of relevant
customer investment profile information, and therefore the Commission believes that no
additional record-making obligations would arise as a result of broker-dealers’ or their registered
representatives’ collection of information from retail customers. 35
Rule 17a-3(a)(35): Record of Identity of Associate Person Responsible for Account/ Firm
Burden
In addition, Rule 17a-3(a)(35) requires 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.” The Commission assumes, for purposes
of compliance with Rule 17a-3(a)(35), that broker-dealers will 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 Regulation Best Interest. For small broker-dealers, the use of outside counsel would
result in a cost burden, which is discussed in Item 13 below. For large broker-dealers, 36 the
Commission estimates that the initial burden will be 2 hours for each broker-dealer (1 hour for
compliance personnel and 1 hour for legal personnel). The Commission therefore estimates the
aggregate initial one-time burden for large broker-dealers to be approximately 4,020 burden
hours. 37 When annualized over three years, this equates to approximately 1,340.67 hours, or
rounded up to 1,341 hours per year.
35

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 the Regulation Best Interest Adopting Release and the
Relationship Summary Adopting Release. With respect to the requirement that a record be made of all
information from the retail customer, the Commission believes that Rule 17a-3(a)(35) would not impose
any new substantive burdens on broker-dealers. As discussed in the Regulation Best Interest Adopting
Release, the Commission continues to believe that the obligation to exercise reasonable diligence, care and
skill will 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.
The Commission estimates, for the purposes of this rule, that there are 2,010 large broker-dealers.
Consequently, the Commission estimates that the remaining 756 broker-dealers are small broker-dealers.

37

This estimate is based on the following calculation: (2 burden hours per broker-dealer) x (2,010 large
broker-dealers) = 4,020 aggregate burden hours per year.

9

Rule 17a-3(a)(35): Record of Identity of Associated Person Responsible for Account/ Individual
Burden
As noted above, Rule 17a-3(a)(35) requires 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.” The Commission estimates that for the
first year after Regulation Best Interest is in effect, registered representatives associated with
each of the 2,766 broker-dealer respondents will spend an additional 0.04 hours (or 0.0133333
hours per year when annualized over three years) per each of its retail customer accounts to fill
out the information in the account disclosure document. The Commission estimates that each
broker-dealer will incur this burden for approximately 36,876 accounts per year. 38 The
Commission continues to believe that there are no ongoing costs and burdens associated with this
record-keeping requirement of Rule 17a-3(a)(35). As a result, the total annual estimated
recordkeeping burden associated with the Identity of Associated Person Responsible for the
Account requirement is approximately 1,359,983 hours for all broker-dealer respondents. 39
Rule 17a-3(a)(35): Record of Oral Disclosure
In cases where broker-dealers choose to meet part of the Disclosure Obligation orally
under the circumstances outlined in Section II.C.1 of the Regulation Best Interest Adopting
Release, the Commission believes the requirement to maintain a record of the fact that oral
disclosure was provided to the retail customer will trigger a record-making obligation under
paragraph (a)(35) and the Commission estimates that this would take place among 52% of a
broker-dealer’s retail customer accounts (and thus 52% of a registered representative’s retail
customer accounts) annually. The Commission estimates that there are currently 102 million
customer accounts. Consequently, the Commission estimates the total burden associated with
the record of oral disclosure requirement of Rule 17a-3(a)(35) to be 1,060,761 hours per year. 40
In summary, the aggregate annual burden attributed to Rule 17a-3 is 5,317,241 hours
broken down as follows:
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

38

For the purposes of this rule, the Commission assumes that each broker-dealer has 36,876 retail customer
accounts (i.e., (102 million retail customer accounts) / (2766 broker-dealers).

39

(2,766 broker-dealers) x (0.0133333) x (36,876 retail customer accounts) = 1,359,983 hours.

40

For the purposes of this rule, the Commission assumes that each broker-dealer has 36,876 retail customer
accounts (i.e., (102 million retail customer accounts) / (2766 broker-dealers). The Commission further
assumes that 52% of the 36,876 retail customer accounts per broker-dealer would trigger the record-making
obligation, or (0.52 x 36,876) = 19,175 retail customer accounts per broker-dealer. Thus, the Commission
estimates the burden to be: (19,175 affected retail customer accounts) x (0.02 hours for recording each oral
disclosure relating to a retail customer’s account) x (2,766 broker-dealers) = 1,060,761 hours.

10

Respondents
Rule 17a-3; Records to be Made by
Certain Exchange Members, Brokers
and Dealers

Recordkeeping

3,764

249

1

937,236

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

Recordkeeping

3,764

1

0.50

1,882

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

Recordkeeping

3,764

1

0.1666

627

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

Recordkeeping &
Third Party
Disclosure

45

759,953

0.0250

854,947

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

Recordkeeping &
Third Party
Disclosure

3,719

92.88302

0.11667

40,301

Recordkeeping &
Third Party
Disclosure

45

265,983.564

0.08334

997,518

3,719

32.5092

0.1666

20,142

Small BD

Recordkeeping &
Third Party
Disclosure

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

Recordkeeping

456

1

33.334

15,200

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

Recordkeeping

456

1

45

20,520

Rule 17a-3(a)(16)

Recordkeeping

200

1

27

5,400

*Rule 17a-3(a)(24): Record of Date
Form CRS Provided to Each
Customer and Prospective Customer
(ongoing burden)

Recordkeeping

2766

1

0.5

1383

*Rule 17a-3(a)(35): Record of
Identity of Associate Person
Responsible for Account - Large
Broker-Dealers (initial one-time
burden)

Recordkeeping

2010

1

0.667

1341

*Rule 17a-3(a)(35): Record of
Identity of Associate Person
Responsible for Account/Individual
Burden (initial one-time burden)

Recordkeeping

2766

36,876

0.0133333

1,359,983

*Rule 17a-3(a)(35): Record of Oral
Disclosure (ongoing burden)

Recordkeeping

2766

19,175

.02

1,060.761

TOTAL

5,317,241

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

11

*These burdens were approved by OMB on October 3, 2019.
13.

Costs to Respondents

The Commission estimates that the aggregate cost burden of the requirements associated
with Rule 17a-3 is approximately $54,448,137, calculated as follows:
Rule17a-3(a)(17) – providing updated information to customers
Ongoing operation and maintenance costs include the cost of postage to provide
customers with account information, and costs for equipment and systems development. The
Commission estimates that under Rule 17a-3(a)(17), approximately 46,633,482 customers
(34,543,320 account records 41 + 6,908,664 updated account records 42 + 5,181,498 updated
account records for customers that will initiate changes to their account records on a yearly basis,
with no prompting from any account record mailing 43) will need to be provided with information
regarding their account on a yearly basis. Firms may include this information with other
communications sent to customers, for instance in customer account statements. In response to
requests for comment relating to the 2001 Amendments, those firms that provided estimates of
postage costs indicated that postage costs to provide customers with account record information
would be about $0.244 per item mailed. 44 However, postage costs have increased since that
time. The current estimate for postage costs is $0.35. 45 Consequently, the Commission
estimates that the postage costs associated with providing 46,633,482 customers with copies of
their account record information would be approximately $16,321,719 per year (46,633,482 x
$0.35). These costs are recordkeeping and third party disclosure burdens, with an assumption
that the burden is split evenly between the two burden types.
Ongoing Cost for Equipment and Systems Development
At the time of the 2001 Amendments, Large Broker-Dealers that provided cost information
estimated that their ongoing, yearly costs for equipment and systems development resulting from
Rule 17a-3 would be approximately $0.25 per customer account. The Commission believes that
the additional cost for smaller broker-dealers is included in the increased hourly burden costs

41

This figure is based on the number of active customer accounts (103,629,960) divided by 3 since the
broker-dealer must send each customer a copy of his or her account record information once every three
years.

42

This figure is based on the number of active customer accounts that receive their account record
(34,543,320) times .20, since the Commission estimates that 20% of customers that receive their account
record will update their account record information.

43

This figure is based on the number of active customer accounts (103,629,960) times 0.05, since 5% of
customers update their account record information each year.

44

See Morgan Stanley Dean Witter comment letter submitted by J. Higgins in response to the 2001
Amendments; See Merrill Lynch comment letter to the 2001 Amendments.

45

The CPI has increased by about 46% since the end of 2001. ($0.244 x 1.46) = $0.35. In addition, postage
costs have increased. Therefore, the Commission is increasing the estimate to $0.35.

12

delineated above. 46 However costs for equipment and systems development have increased
since 2001. Consequently, the Commission believes that the total ongoing equipment and
systems development costs relating to Rule 17a-3 for the industry would be about $37,446,686
per year (102,593,660 active customer accounts held by the 45 Large Broker-Dealers x
$0.365 47), or an annual cost burden of $832,148.57 for each of the 45 Large Broker-Dealers.
This cost is a recordkeeping burden.
Rule 17a-3(a)(23) Part 1
With respect to the amendment to paragraph (a)(23) to Rule 17a-3, a broker-dealer is
required to document its liquidity, credit, and market risk management controls, if it has
established such controls. These broker-dealers may incur one-time startup costs to hire outside
counsel to review the documented controls to ensure the broker-dealer is meeting the
requirements of the rule. Based on staff experience with similar reviews, the Commission
estimates that 456 broker-dealers would incur $2,000 in legal costs, 48 or $912,000, in the
aggregate, initial one-time recordkeeping burden to review and comment on the documented risk
management controls. 49 For purposes of this supporting statement, the one-time cost of
$912,000 annualized over the three-year approval period is $304,000, 50 with an average cost per
respondent of $666.67. 51
Rule 17a-3(a)(35): Record of Identity of Associate Person Responsible for Account/
Firm Burden
To meet the requirement under Rule 17a-3(a)(35) to make a record of the “identity of
each natural person who is an associated person, if any, responsible for the account,” the
Commission believes that small broker-dealers will require, on average, approximately 1 hour
per year for outside legal counsel, at an updated average rate of $497/hour, for an average annual
cost of $497 for each small broker-dealer to update an account disclosure document. The
projected aggregate annual cost for small broker-dealers is therefore estimated to be $375,732
per year, or (756 x $497).
In summary, the total cost burden associated with Rule 17a-3 is approximately
$54,448,137 per year, broken down as indicated below. 52
46

Smaller broker-dealers are not as automated, and their processes tend to be more manual in nature. In
addition, no smaller broker-dealers provided information regarding any increased equipment or systems
development costs at the time of the 2001 Amendments.

47

The CPI has increased by about 46% since the end of 2001. ($0.25 x 1.46) = $0.365.

48

The Commission staff estimates that the review of the documented controls would require 5 hours of
outside counsel time at a cost of $400 per hour.

49

$2,000 x 456 broker-dealers = $912,000.

50

$912,000 / 3 years = $304,000.

51

$304,000 / 456 firms = $666.667.

52

This includes annual postage costs of $16,321,719 and ongoing equipment and systems development costs
of $37,446,686 per year.

13

Summary of Cost Burdens
Name of Information
Collection

Type of Burden

Number of Respondents

Annual Cost Burden per
Respondent

Annual Cost for all
Respondents

Rule 17a-3 - providing updated
information to customers

Recordkeeping
& Third Party
Disclosure

3,764

$4,336.27

$ 16,321,719

Ongoing cost for equipment &
systems development

Recordkeeping

45

$832,148.57

$ 37,446,686

Rule 17a-3(a)(23) Part 1

Recordkeeping

456

$666.667

$304,000

*Rule 17a-3(a)(35): Record of
Identity of Associate Person
Responsible for Account/ Firm
Burden
-Small Broker-dealers

Recordkeeping

756

$497

$375,732

TOTAL

$ 54,448,137

*This burden was approved by OMB on October 3, 2019.

14.

Costs to Federal Government

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

Changes in Burden

The annual burden has changed due to a decrease in the number of respondents (i.e., the
number of registered broker-dealers has decreased from 4,104 to 3,764) and an increase in the
number of customer accounts held by broker-dealers (from 126,458,378 to 143,333,278). The
result of these changes has been an increase in the hourly burden from 2,763,612 to 2,893,773
hours, or an increase of 130,161 hours per year. The annual costs increased due to inflation,
increases in postage costs, and in increase in the number of customer accounts. The overall
impact of these changes has been an increase in costs of $9,510,043, going from $44,562,361 to
$54,072,405 per year. 53

53

2019.

The changes in burdens are calculated exclusive of the burdens that were approved by OMB on October 3,

14

Changes in Hourly Burden
Name of Information
Collection
Rule 17a-3; Records to
be Made by Certain
Exchange Members,
Brokers and Dealers

Annual Industry
Burden

Annual Industry
Burden Previously
Reviewed

Change in Burden

Reason for Change

937,236

1,021,896

(84,660)

Reduction in the number of
registered broker-dealers
(i.e., respondents) from 4,104
to 3,764

1,882

2,052

(170)

Reduction in the number of
registered broker-dealers
(i.e., respondents) from 4,104
to 3,764

627

684

(57)

Reduction in the number of
registered broker-dealers
(i.e., respondents) from 4,104
to 3,764

854,947

752,007

102,940

Increase in the number and
percentage of customer
accounts held by large broker
dealers

40,301

46,220

(5,919)

Reduction in the number and
percentage of customer
accounts held by small
broker-dealers

997,518

877,411

120,107

Increase in the number of
customer accounts requiring
an update due to an increase
in the number of total
accounts and the percentage
of accounts held by large
broker-dealers

20,142

23,102

(2,960)

Decrease in the number of
customer accounts requiring
an update due to a decrease
in the percentage of accounts
held by small broker-dealers

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

15,200

15,400

(200)

Decrease in the number of
registered broker-dealers
subject to this rule

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

20,520

20,790

(270)

Decrease in the number of
registered broker-dealers
subject to this rule

5,400

4,050

1,350

Increase in the number of
broker-dealers subject to this
rule

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

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

Rule 17a3(a)(17)(i)(B)(1) - Large
BD

Rule 17a3(a)(17)(i)(B(1) - Small
BD
Rule 17a3(a)(17)(i)(B)(2) & (3) Large BD

Rule 17a3(a)(17)(i)(B(2) & (3) Small BD

Rule 17a-3(a)(16)

15

Change in Hourly Costs
Name of Information
Collection

Annual Industry Cost

Annual Industry Cost
Previously Reviewed

Change in Cost

Reason for Change

Rule 17a-3 - providing
updated information to
customers

$ 16,321,719

$ 13,577,267

$ 2,744,452

Increase in the number
of customer accounts
and increase in the cost
of postage

Ongoing cost for
equipment & systems
development

$ 37,446,686

$ 30,677,094

$ 6,769,592

Increase in the costs of
equipment and systems
due to inflation

Rule 17a-3(a)(23) Part 1

16.

$304,000

$ 308,000

$ (4000)

Decrease in the
number of brokerdealers subject to this
rule

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.

16


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