Compliance Solutions for Investment Advisers

FAQs — Electronic Records

 

Are investment advisers allowed to keep records in an electronic format?

Advisers are permitted to keep their records in an electronic format.

What are the requirements for keeping records electronically?

An investment adviser is permitted to maintain records electronically if it establishes and maintains procedures: (i) to safeguard the records from loss, alteration, or destruction, (ii) to limit access to the records to authorized personnel, the SEC, and (in the case of funds) fund directors, and (iii) to ensure that electronic copies of non-electronic originals are complete, true, and legible.

Are investment advisers required to keep electronic records in a non-rewriteable, non-erasable format?

No.  Advisers do not have to keep records in a non-rewriteable, non-erasable (also known “write once, read many,” or “WORM”) format.

How should investment advisers store electronic records?

Investment Advisers may keep records on various electronic storage media, subject to certain conditions.  Advisers must:

  1. Arrange and index the records in a way that permits easy location, access, and retrieval of any particular record;
  2. Provide promptly any of the following:
    • Legible, true, and complete copy of the record in the medium and format in which it is stored;
    • A legible, true and complete printout of the record; and
    • Means to access, view, and print the records; and
  3. Separately store, for the time required for preservation of the original record, a duplicate copy of the record;
  4. Maintain and preserve the records, so as to reasonably safeguard them from loss, alteration, or destruction;
  5. Limit access to the records to properly authorized personnel; and
  6. Reasonably ensure that any reproduction of a non-electronic original record on electronic storage media is complete, true, and legible when retrieved.

What are the requirement for providing electronically formatted books and records during an SEC examination?

Advisers must be able to promptly provide (i) legible, true, and complete copies of records in the medium and format in which they are stored, and printouts of such records; and (ii) means to access, view, and print the records.

What does “promptly” mean in this case?

There is no statutory definition of “promptly,” but in the past, it has meant not more than 24 hours. As technology has improved, however, the SEC has been known to shorten this time frame considerably.

Are investment advisers required to retain email?

If the email would constitute a required record if it was in writing, then yes.

May an adviser delete non-required email?

Currently, it is acceptable to delete non-required email, but advisers should be very cautious when doing so.  Internal procedures must be very specific as to what email may or may not be deleted and controls must be in place to monitor compliance with these procedures.

Does an investment adviser need to adopt a formal email retention policy?

Because SEC officials have consistently noted that one of the main compliance concerns with respect to investment advisers is their failure to maintain and produce required books and records, including email, it would be prudent for an advisory firm to adopt a formal email retention policy.

What type of email retention policy should an adviser adopt?

 An investment adviser may take either of two approaches in formulating an email retention policy:

  1. Create a policy requiring the retention of all email; or
  2. Create a policy requiring the retention of email falling within Rule 204-2, but permitting the destruction of all other email. Such a policy should provide for some method or system of surveying deleted email to ensure the retention of email covered under Rule 204-2.

What should an investment adviser’s formal email retention/destruction policy address?

A formal email retention/destruction policy should be comprised of several factors, including, (i) the designation of an individual responsible for supervision of the policy; (ii) a requirement that advisory firm personnel refrain from conducting business through any communication network not maintained by the advisory firm (e.g., email, instant messaging, text messaging); (iii) a requirement that electronic communications that fall within the applicable recordkeeping requirements are identified and preserved in the appropriate manner; (iv) a description of the system or method used that will be used to identify email that fall within applicable recordkeeping requirements; (v) a requirement that disposal of email is carried out in a way that protects confidentiality; (vi) education and training programs; and (vii) an annual review of the policy.

How long must email be kept?

Email must be kept for the same length of time as if the record was a written/printed record.

 

Important Information

The information contained in this Frequently Asked Questions is only a summary and is not intended to be a comprehensive analysis of the rules and regulations applicable to registered investment advisers. It is not intended to constitute legal or compliance consulting advice or apply to any one investment adviser’s particular situation. For more information, please see our Terms of Use.

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