Quick Answer
Prohibited books-and-records conduct includes falsifying records, making false or incomplete entries, failing to create or keep required records current, and destroying, concealing, deleting, or making records inaccessible before retention ends. Broker-dealers must also promptly furnish legible, true, complete, and current copies when the Securities and Exchange Commission requests them.
The same record trail that supports reconciliations and reporting can fail through inaccurate content, missing detail, poor maintenance, or premature loss of access.
Falsification and Inaccurate Entries
- Falsification: Creating, altering, or causing a record to be inaccurate.
- Accurate record requirement: Records of transactions, cash movements, securities movements, account activity, and financial condition must reflect the underlying activity accurately.
- False or incomplete entry: An entry that does not accurately reflect the underlying activity defeats the requirement for complete, current books and records.
The compliance chain is: underlying activity -> accurate record -> reliable books and records. An inaccurate entry breaks that chain.
Exam Tip: Gotchas
- Falsification includes causing a record to be inaccurate. The problem is not limited to physically changing an existing document.
Improper Maintenance, Retention, and Production
- Improper maintenance: Failing to make required records, failing to keep them current, or failing to maintain required detail.
- Improper retention: Destroying, deleting, concealing, or making required records inaccessible before the applicable preservation period ends.
- Production obligation: A broker-dealer must promptly furnish the Securities and Exchange Commission (SEC) with legible, true, complete, and current copies of required preserved records when requested.
| Conduct | Why it fails |
|---|---|
| Failure to make, update, or detail a record | The firm's books are incomplete or not current |
| Destroying, deleting, concealing, or losing access too early | The firm cannot satisfy the applicable preservation period |
| Failing to furnish usable copies on request | The SEC cannot obtain legible, true, complete, and current preserved records promptly |
Exam Tip: Gotchas
- A record can be improperly retained even when it still exists. If the firm makes it inaccessible before the preservation period ends, it has failed the retention requirement.