- US brokerages are lining up against a 12-year-old regulation that requires them to store electronic documents on unchangeable optical media, saying the archival method is too expensive and cumbersome to manage and doesn't necessarily safeguard information.
The Securities Industry Association (SIA) in late February sent the US Securities and Exchange Commission a letter asking the agency to remove the technology-specific language from its rule on the retention of electronic records. The rule currently dictates that brokerages store electronic records on WORM devices. The New York-based SIA this week said that it wants the SEC to instead focus on the creation of policies and procedures to ensure that important data won't be modified.
WORM, which stands for "write-once, read-many," is an optical storage technology that lets users write data to a disk or tape just once in order to create a permanent, unalterable set of records.
But Scott Kursman, associate general counsel at the SIA, says the use of WORM devices doesn't prevent brokers from changing documents before they get archived.
"If you have controls and procedures around things like access and the archiving environment, that gets you to a place that would result in a more robust rule than what we have today," Kursman says. He adds that brokerages would much rather use technology such as EMC's Centera fixed-data disk array or inexpensive, high-capacity magnetic tapes.
Financial services firms are finding that it can be an "hours-long procedure" to retrieve documents from WORM drives, Kursman says. In comparison, documents archived on newer storage devices are instantly identifiable from indexing, he says.
An SEC spokesman says the agency has yet to respond to the SIA's request and added that there is no timetable in which it would have to do so.
The WORM storage requirement dates back to 1991, when brokerages were looking to move away from storing records on paper and microfiche. Ironically, the SEC chose WORM technology in response to a petition from the SIA for a rule that would allow electronic forms of storage.
But Patrick C Gordon, an analyst at Enterprise Storage Group in Milford, Massachusetts, says very few vendors sell WORM devices now, which has left many brokerages running systems that are no longer supported.
Because of the ubiquitous use of email by brokers and new federal regulations such as the Sarbanes-Oxley Act, complying with email retention requirements will be one of the most important IT-related issues for financial services firms during the next two years, Gordon says.
In recent months, the SEC has been closely scrutinising the archiving of communications between brokers and their customers, particularly email transmissions. For example, the agency in December fined five brokerages a total of $US8.25 million for violating its email record-keeping requirements.