FINRA Rule 4511: an overview

FINRA Rule 4511 is a general regulatory notice that applies to record-keeping practises in the financial services industry. Introduced on December 5th 2011, this is the North American (particularly, US) standard for the preservation of books and records.

Key provisions of FINRA Rule 4511

The purpose of FINRA Rule 4511 is to standardize the processing of records and simplify access for regulators. It was introduced to make the treatment of data more safe and secure. Under Securities and Exchange Commission (SEC) rule, it’s North America’s answer to Europe’sGDPR regulation. 

Record making

The first function of FINRA 4511 is to ensure that records are made in accordance with standard practice. This applies to data collection for: account name, customer complaint information, e-signatures and approvals, as well as negotiable instruments.

It’s important to note that if your records are made and kept by a third party, your outsourcing must also be in alignment with FINRA 4511 regulations. This applies across all channels, including social media, SMS, audio, video, and website data collection.

Record preservation

This part is slightly more complicated, but it means that your firm can stay on the right side of the regulators and be protected against compliance issues.

Regulatory compliance to FINRA states that the retention period for records is a minimum of six years. You are allowed to store records in three ways:

1. On paper
2. On micrographic materials (i.e. film)
3. Online (as an electronic record)

Micrographic and digital storage methods have a specific set of requirements which are assembled into a number of parts. Firstly, as a broker-dealer you must show clear communication to notify partners of electronic storage methods.

As a FINRA member, your record-keeping must have official electronic storage media (ESM) representation, meaning that it can automatically verify accounts, preserve records, serialise time-date information and be readily available to download. 

Your system should have an audit capability (likely powered by natural language processing) that automatically categorises its original and duplicate records, as well as any changes made from the originals. This will mean it is easier surrendered to the SEC or other third-party access in case of reviews or other business communication.

Finally, brokerage firms should hold duplicate copies of records kept separately from the original (in case of file corruption or loss). All electronic communication records are then indexed into an organised system (by date, for example).

Compliant formats

FINRA 4511 states that you should preserve records in formats and media that comply with the regulation. FINRA compliance formats intend to make it easier for both internal operations and external investigators to access and understand your data. This enables you to comply with an overall digital communications regulation.

Who must comply with FINRA Rule 4511?

FINRA 4511 – as with all FINRA rules – applies to broker-dealers, securities firms, funding portals and financial institutions involved in capital acquisitions.

There are a number of sanctions and penalties that FINRA applies to those who violate the financial regulatory authority. Historically, this has included financial penalties in order to obtain compensation for wronged customers. Alternatively, the SEC (the financial industry regulatory authority) has the power to discharge individual brokers who violate the terms of regulation.

From FINRA Rule 4511 to the GDPR, CUBE understands financial regulation for US firms and provides automated regulatory intelligence – so you know what your regulatory obligations are now, and for the future. Information governance is our bread and butter – from record retention to defensible disposal.