Broker Person involved in the business of effecting transactions involving securities for the accounts of others. He acts as an agent to investment advisors, independent contractors, financial consultants and placement agencies.
Dealer Person buying or selling securities for his account. He acts as a principal. New rules and regulations prevailing in the broker-dealer business have led to a complex environment of compliances.
Points:
In the United States, all broker-dealers are managed under the Securities Exchange Act of 1934 by the Securities and Exchange Commission (SEC).
Every broker that sells securities to the public must be permitted and registered by Financial Industry Regulatory Authority (FINRA), a self-regulatory organization.
All brokers and dealers registered with the SEC are required to be members of the Securities Investor Protection Corporation (SIPC).
According to the Securities and Exchange Act, 1934(SEA), every registered broker-dealer must file an annual report. Members must submit their annual reports to FINRA, SEC and SIPC (If applicable).
When broker-dealers file their annual reports with the SEC, they are required to include their financial statements and supporting schedules, typically along with audit reports prepared by PCAOB-registered public accounting firms.
Broker-dealers are also generally required to file compliance or exemption reports, along with examination or review reports prepared by the same firms that prepared the audit reports. The audits, examinations, and reviews must be performed following PCAOB standards.
Due date The deadline for filing the annual broker-dealer audit is no later than 60 days after the end of the fiscal year. Therefore, the annual audit is due to regulators on or before 1 March, for the year ended 31 December.
List of some important compliances to be followed and reviewed for broker-dealer audits:
Focus reports Every broker-dealer is required to prepare a net capital computation within 17 business days of the month/Quarter end according to Rule 17a-5. This report is called the FOCUS report, and it also includes a balance sheet, equity reconciliation, income statement, and net capital computation.
Form BR/BD Other self-regulatory organizations and jurisdictions must file Form BD to register a broker-dealer firm with the SEC. In contrast, it needs to file from BR to register its branch office.
Form U4/U5 BD firms require registered representatives (RR) to serve as representatives for clients trading in securities or investment products. In addition, they may be employed as brokers, financial advisors, or portfolio managers. FINRA Form U4 is the Uniform Application for Broker-Dealer Registration which is used to register new individuals and register existing licensed individuals under a different employee. FINRA Form U5 is called the uniform termination notice for securities industry registration, and it is filed to Update/terminate individuals’ registration.
AML audits These are Annual independent reviews of the firm’s Anti-money laundering program by FINRA to ensure the firm detects and reports suspicious activity. In addition, it determines that the policies, procedures and practices are adequately designed to comply with requirements by current government guidelines.
SIPC-6 and SIPC 7
SIPC-6 is a General Assessment Payment Form that is filed for the first half of the fiscal year. The completed form and any assessment owed are due 30 days after the period covered, plus a 15 day grace period. SIPC-7 is a General Assessment Reconciliation Form to be filed at the end of the fiscal year, less any assessment paid with the SIPC-6. The whole form is due 60 days after the fiscal year-end plus a 15 day grace period with any additional assessment owed.
AJSH is registered with PCAOB, USA, and has assisted its clients with providing audit and assurance services for over a decade to various clients in the United States, including broker-dealers. We serve different broker-dealer firms registered in the United States w.r.t. their audits under Rule 17a-5 under the Securities Exchange Act of 1934 (FINRA Audit). If you have any questions or wish to know more about broker-dealers, kindly contact us.
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