Under Rule 17a-5, a broker-dealer must also file an unaudited quarterly report (Form Custody) that discloses to the SEC the broker-dealer’s practices with respect to maintaining custody of its customers’ securities and cash. The reports are designed to establish a custody profile for the broker-dealer that auditors can use as a starting point to focus their custody examinations.
On the report, carrying broker-dealers must:
• reveal whether they only carry their own accounts or whether they carry accounts for other broker-dealers
• describe whether they send transaction confirmations directly to customers and whether they provide their customers with electronic access to information about the securities in their accounts
• identify whether they operate as investment advisers or are an affiliate of an investment adviser
The Form Custody must be filed within 17 business days after the end of each calendar quarter, in coordination with the filing of the firm’s FOCUS Reports.
A broker-dealer that is a member of the Securities Investor Protection Corporation also must file its annual reports with SIPC so that SIPC can better monitor industry trends and enhance its knowledge of particular firms.
A broker-dealer must agree to allow the SEC to review the work papers of its independent public accountant on request. It must allow the accountant to discuss its findings with the examiners. A broker-dealer must file a notification to the SEC if it discovers or is notified by the independent auditor of any material weakness in the broker-dealer’s internal controls over compliance with the financial responsibility rules.
