SEC Risk Alert: Examining Broker-Dealers

Area

Example Documents

Organizational Information

• Structure, affiliations, and control persons
• Remote offices and branches
• Employees
• Committees (e.g., responsibilities, members, meeting frequency, meeting minutes)

Business & Operations

• Firm’s business, including any recent significant changes
• Clearing agreements
• Website domain addresses
• Compensation arrangements

Financial Information

• Annual audited report(s)
• Income statement(s)
• General ledger(s)
• Profit and loss statement(s)

Legal & Disciplinary

• Pending and settled litigation, arbitration or proceedings
• Regulatory inquires, complaints, investigations or subpoenas
• Associated persons subject to special/heightened supervision or termination for cause

Area

Example Documents

Books & Records; Compliance & Oversight

• Written supervisory and compliance policies and procedures
• Oversight processes (e.g., compliance reviews, surveillance, and/or supervisory reviews)
• Customer complaints and correspondence; process for monitoring (incl. e-communication)
• Employee guidance and training; documentation of attendance

Branch Office Oversight

• List of branch offices, including “doing business as” names
• Description of process to perform branch office inspections
• Any Profit and Loss statement by branch
• Registered personnel within selected branches and compensation earned

Information Processing, Reporting, and Protection

• Safeguards for the protection of customer records and information
• Electronic access controls
• Business continuity plan
• Cybersecurity incidents or breaches (e.g., incident description, impact, and remediation)

Area

Example Documents

Sales Practices, Regulation Best Interest, Form CRS

• List of products sold
• Customer fee schedule
• Written policies and procedures for Regulation Best Interest and Form CRS compliance
• Customer account list
• Conflicts inventory

Anti Money Laundering (AML)

• Current or ongoing external regulatory investigations or inquiries into AML-related functions
• AML written supervisory policies and procedures
• List of customer accounts with risk rankings; date of onboard; most recent KYC review
• Surveillance, monitoring, ad management reports
• Most recent reviews performed over KYC, transaction monitoring, SAR handling

Net Capital and Customer Protection

• FOCUS reports
• Trial balance and balance sheets
• Net capital computation, including all supporting workpapers
• List of all bank accounts and customer checks
• Changes in ownership equity