A Reminder of the Changes to Broker-Dealer Reporting

Several years ago, the Securities and Exchange Commission undertook a project to revise the reporting requirements of broker-dealers. As many of our clients are getting ready for their annual audit, we thought now was a good time to revisit the revised reporting requirements for broker-dealers.

In June 2011, the Securities and Exchange Commission (SEC) proposed amendments to Rule 17a-5, Reports to be made by certain brokers and dealers. In July, 2013, the SEC adopted these amendments in an effort to strengthen and clarify broker-dealer annual financial reporting requirements, and also to facilitate the ability of the Public Company Accounting Oversight Board (PCAOB) to implement the oversight of independent public accountants of brokers and dealers.

The PCAOB adopted two attestation standards specifically for broker-dealers, and the SEC has replaced the internal control report requirement with a requirement to file one of two reports: a Compliance Report for carrying broker-dealers or an Exemption Report for non-carrying broker-dealers.

The Compliance Report is required for any broker-dealer that did not claim an exemption from Rule 15c3-3 and focuses on:

  • The broker-dealer’s compliance with the financial responsibility rules
  • Whether the information used to determine compliance with the financial responsibility rules was derived from the books and records of the broker-dealer
  • Whether internal control over compliance with the financial responsibility rules was effective during the most recent fiscal year end and that there were no instances of material weakness.

Non-carrying broker-dealers are required to file an Exemption Report. The Exemption Report applies to any broker-dealer that claims an exemption from Rule 15c3-3 under subparagraph (k). The Exemption Report includes the following assertions of the broker-dealer:

  • A statement that identifies the provisions in paragraph (k) of SEC Rule 15c3-3 under which the broker-dealer claimed an exemption
  • A statement that the broker-dealer met the identified exemption provisions throughout the most recent fiscal year without exception or met the identified exemption provisions throughout the most recent fiscal year except as described in the exemption report
  • A statement, if applicable, that identifies each exception during the most recent fiscal year in meeting the identified exemption provisions and that briefly describes the nature of each exception and the approximate date(s) on which the exception existed.

The broker-dealer’s PCAOB registered independent public accountant is required to perform a review of either the Compliance Report or the Exemption Report and issue a report based on their review.

These reports, along with the audited financial statements and required supplemental information, and the reports of the independent public accountant, are required to be filed within sixty days after the broker-dealer’s fiscal year end with the SEC, the Securities Investor Protection Corporation (SIPC), and the broker-dealer’s designated examining authority.

Broker-dealers are also required to make notification to the SEC and FINRA regarding their engagement of a PCAOB registered independent public accountant for this year and would need to for each year going forward if the engagement is not reoccurring in nature. This notification is required to be made by the tenth day of the last month of the broker-dealer’s fiscal year end.

We will be happy to provide further information relating to this subject. For more information, contact Francis L. Varanavage, Manager, Audit & Accounting at fvaranavage@kmco.com or 215.441.4600.

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