Hey, if you hired a new accountant to do your year-end audit, remember that you have to tell SEC about it. You can find the Designation of Accountant form at this link:
http://www.finra.org/web/groups/industry/@ip/@comp/@regis/documents/industry/p009841.pdf
Here is the delivery information I have:
Constance Jackson
SECURITIES AND EXCHANGE COMMISSION
mailstop - 6628
100 F Street, NE
Washington, DC 20549
fax # 202 772 9273
phone # 202 551 5526
My notes say this is due by December 10. So if you haven't done this yet, hurry.
Rule Reference: SEC 17a-5(f)(2)
Friday, December 4, 2009
Thursday, November 12, 2009
SIPC Supplemental Report: Last Helpful Tip
I'm getting bored with this subject, I have to admit... but I looked into something and thought I'd pass along what I learned.
The "e-4 report," or "supplemental report" required under SEA 17a-5(e)(4), is a newly-unearthed requirement for SIPC members (read my two earlier blogs on this if you're confused right now: Sept. 24 and Nov. 10). FINRA sent out a little blurb that stated, "If your firm is a SIPC member and has net operating revenues of more than $500,000, your firm's auditor must complete the SIPC Supplemental Report..."
A helpful reader (I have readers! and some of them are helpful!!) was looking for the source of that $500,000 threshold. I, being busy, promised to look for it, but he, being helpful, found it himself and forwarded me FINRA's 89-25 NtM...here is the link to that: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=1400
This old Notice includes an SEC no-action letter that describes the $500,000 threshold. But SEC uses the term "total revenues" and FINRA, in said Notice, uses the term "gross annual revenue." Both of these terms contradict FINRA's newest descriptor, "net operating revenues."
So I called a woman at SIPC who is smart and kind and--again, this word--helpful! She explained that yes, it is indeed "total revenue"--that is, before deductions--and that the SEC no-action letter is the only reference to that exclusion/threshold. You won't find it anywhere else. She also surmised that this new assessment equation will be in place for a while--so get used to it, folks!
If you work for FINRA and you are reading this, a) why are you reading my blog? and b) to be helpful (pay it forward), tell someone at your shop about this discrepancy/miscommunication, so that firms may do what is required without being confused.
Thanks to Mr. A.C., who inspired today's blog entry.
The "e-4 report," or "supplemental report" required under SEA 17a-5(e)(4), is a newly-unearthed requirement for SIPC members (read my two earlier blogs on this if you're confused right now: Sept. 24 and Nov. 10). FINRA sent out a little blurb that stated, "If your firm is a SIPC member and has net operating revenues of more than $500,000, your firm's auditor must complete the SIPC Supplemental Report..."
A helpful reader (I have readers! and some of them are helpful!!) was looking for the source of that $500,000 threshold. I, being busy, promised to look for it, but he, being helpful, found it himself and forwarded me FINRA's 89-25 NtM...here is the link to that: http://finra.complinet.com/en/display/display_main.html?rbid=2403&element_id=1400
This old Notice includes an SEC no-action letter that describes the $500,000 threshold. But SEC uses the term "total revenues" and FINRA, in said Notice, uses the term "gross annual revenue." Both of these terms contradict FINRA's newest descriptor, "net operating revenues."
So I called a woman at SIPC who is smart and kind and--again, this word--helpful! She explained that yes, it is indeed "total revenue"--that is, before deductions--and that the SEC no-action letter is the only reference to that exclusion/threshold. You won't find it anywhere else. She also surmised that this new assessment equation will be in place for a while--so get used to it, folks!
If you work for FINRA and you are reading this, a) why are you reading my blog? and b) to be helpful (pay it forward), tell someone at your shop about this discrepancy/miscommunication, so that firms may do what is required without being confused.
Thanks to Mr. A.C., who inspired today's blog entry.
Wednesday, November 11, 2009
Procrastination Pays Off Again: Red Flags Rule Enforcement Delayed
How did I miss this last week?? Received November 4...
I wonder which "Members of Congress" we have to thank for this? Well, anyway, most small firms aren't pulling credit reports and don't have proprietary online account access systems that would be vulnerable to attack. So if you didn't put an Identity Theft Prevention Program in place by now, I understand why. And you know how I feel about introducing firms that open margin accounts being characterized as 'creditors' for the sake of this rule, right? Baloney. Let's hope with this third? fourth? delay, the enforcers-that-be will come to their senses on that topic.
"At the request of Members of Congress, the Federal Trade Commission (FTC) has delayed until June 1, 2010, its enforcement of the new Red Flags Rule. The rule requires most broker-dealers to have in place a written program to identity, detect and respond to patterns, practices or specific activities that could indicate identity theft ("red flags"). Enforcement of the Red Flags Rule, which implements a section of the Fair and Accurate Credit Transactions Act of 2003 (FACT Act), was previously scheduled to begin on November 1, 2009."
I wonder which "Members of Congress" we have to thank for this? Well, anyway, most small firms aren't pulling credit reports and don't have proprietary online account access systems that would be vulnerable to attack. So if you didn't put an Identity Theft Prevention Program in place by now, I understand why. And you know how I feel about introducing firms that open margin accounts being characterized as 'creditors' for the sake of this rule, right? Baloney. Let's hope with this third? fourth? delay, the enforcers-that-be will come to their senses on that topic.
Tuesday, November 10, 2009
SIPC Supplemental Report--Some More Help
On that SIPC supplemental report I discussed back in September... got this (see below) from FINRA the other day. Two things to note:
1. The $500,000 threshold -- I had not noted this in my earlier blog. Probably because I didn't know about it. This will spare some of you very small firms from having to procure this report from your auditor.
2. The AICPA site includes guidance on the 'e-4 report'--check out the link, below.
From FINRA:
SIPC Supplemental Report Requirement This year, SIPC raised its member's assessment to .0025 of each member's securities business net operating revenues. If your firm is a SIPC member and has net operating revenues of more than $500,000, your firm's auditor must complete the SIPC Supplemental Report under SEA Rule 17a-5(e)(4) for fiscal years ending April 30, 2009, through December 31, 2009. Auditors must complete and submit the Report, together with the Annual Audit, or the Audit will be deemed deficient. For guidance on what to include in the Report, see the American Institute for Certified Public Accountants Web site--http://www.aicpa.org/download/acctstd/AppendixG_V3_ff.pdf .
1. The $500,000 threshold -- I had not noted this in my earlier blog. Probably because I didn't know about it. This will spare some of you very small firms from having to procure this report from your auditor.
2. The AICPA site includes guidance on the 'e-4 report'--check out the link, below.
From FINRA:
SIPC Supplemental Report Requirement This year, SIPC raised its member's assessment to .0025 of each member's securities business net operating revenues. If your firm is a SIPC member and has net operating revenues of more than $500,000, your firm's auditor must complete the SIPC Supplemental Report under SEA Rule 17a-5(e)(4) for fiscal years ending April 30, 2009, through December 31, 2009. Auditors must complete and submit the Report, together with the Annual Audit, or the Audit will be deemed deficient. For guidance on what to include in the Report, see the American Institute for Certified Public Accountants Web site--http://www.aicpa.org/download/acctstd/AppendixG_V3_ff.pdf .
Monday, October 26, 2009
AML Non-Compliance Back in the Day
I just read FINRA’s release on the Scottrade fine, the one that alleges failure to establish and implement an adequate AML program to detect and trigger reporting of suspicious transactions.
Yikes!
The period of most egregious failure was from April 2003 to January 2005. Geez, back then, NASD’s testing of AML compliance consisted of seeing if firms knew what A-M-L stood for. It’s only in the past couple of years that FINRA’s examination program has raised its expectations…that is, instead of being satisfied that a firm had a program in place, they actually look at the components and consider their reasonableness. To look back at a period in which AML rules were brand new seems a bit unfair (I know—the Rule came out in April 2002--but CIP didn’t come out until October 2004, and this whole emphasis on REPORT! REPORT! REPORT! didn’t take shape until about two years ago). If their expectations were low back then, why is it okay to apply the heightened standard retroactively?
I don’t have any information on this case, so I’m reacting to the summary provided by FINRA. So I might not be fair, either.
But reading the summary leads to me a few other hysterical reactions—er, I mean, thoughtful considerations: Why was it unreasonable, in the early days of AML regulation, to assume that monitoring movement of money was a good means of detecting suspicious activity? Why was it unreasonable to let designated personnel like branch (front-line), cashiering (appropriate, non?) and margin employees refer suspicions to compliance? Why was is a bad thing that Scottrade got progressively more attuned to the challenge of AML monitoring and thus hired a risk management analyst to review its system and later developed a proprietary, automated monitoring system? Why is Scottrade being criticized, in this context, for not preventing ID theft and account intrusions back before 2007, when those hot topics were only in the early stage of regulatory focus (Nov. 1, 2009 is the effective date for compliance with the ITPP requirements under the FACT Act and to my knowledge, Reg. S-P amendments have yet to be made effective—email me if I’m wrong on this)? And Scottrade’s volume report being used back in 2006 to detect pump-and-dump schemes and unauthorized trading activity, but not to detect suspicious activity by bona fide account holders?... if NASD required this back then, why didn’t they tell them? I’m sure they were in there reviewing general and AML compliance every year.
I’m wondering, how much of this longed-for monitoring would have led to SAR reporting that would have resulted in actual cases proving terrorist financing? Was that factored into the findings? (Oops, there I go again, forgetting that BD’s are law enforcement agencies charged with uncovering fraud and tax evasion, too.) Or is this finding just a hypothetical exercise in retroactive nit-picking for the sake of making an example out of the ‘failure’ or – I’m not really a cynic – to make money?
I have to admit: I see small firms being examined on the bare basics of AML and I find that FINRA continues to be gentle with these small firms. It’s almost like ‘principle-based’ compliance, but not really. It’s more like, “Okay, you’ve met the minimum requirements under 3011, but don’t forget to get exception reports” and all ends well. Personally, I’m okay with this, especially in the context of very small firms with a limited business whose clientele is local and very familiar. To expect anything more than token AML compliance is wrong in those cases. For bigger firms, yeah, sure, take it to the next level—but don’t mix subject areas and don’t retroactively apply developing standards to a time when AML was new and little understood. Even for the big firms that’s not fair. They are slow-moving beasts and should have been afforded a learning curve.
I think I’m too tolerant. That’s my problem. The world might very well be a charred sinkhole had it been under my watch until now. Never elect me President*.
(*Attorney General, maybe. I promise I’ll follow in Holder’s footsteps. --here I go again, with that tolerance thang.)
Yikes!
The period of most egregious failure was from April 2003 to January 2005. Geez, back then, NASD’s testing of AML compliance consisted of seeing if firms knew what A-M-L stood for. It’s only in the past couple of years that FINRA’s examination program has raised its expectations…that is, instead of being satisfied that a firm had a program in place, they actually look at the components and consider their reasonableness. To look back at a period in which AML rules were brand new seems a bit unfair (I know—the Rule came out in April 2002--but CIP didn’t come out until October 2004, and this whole emphasis on REPORT! REPORT! REPORT! didn’t take shape until about two years ago). If their expectations were low back then, why is it okay to apply the heightened standard retroactively?
I don’t have any information on this case, so I’m reacting to the summary provided by FINRA. So I might not be fair, either.
But reading the summary leads to me a few other hysterical reactions—er, I mean, thoughtful considerations: Why was it unreasonable, in the early days of AML regulation, to assume that monitoring movement of money was a good means of detecting suspicious activity? Why was it unreasonable to let designated personnel like branch (front-line), cashiering (appropriate, non?) and margin employees refer suspicions to compliance? Why was is a bad thing that Scottrade got progressively more attuned to the challenge of AML monitoring and thus hired a risk management analyst to review its system and later developed a proprietary, automated monitoring system? Why is Scottrade being criticized, in this context, for not preventing ID theft and account intrusions back before 2007, when those hot topics were only in the early stage of regulatory focus (Nov. 1, 2009 is the effective date for compliance with the ITPP requirements under the FACT Act and to my knowledge, Reg. S-P amendments have yet to be made effective—email me if I’m wrong on this)? And Scottrade’s volume report being used back in 2006 to detect pump-and-dump schemes and unauthorized trading activity, but not to detect suspicious activity by bona fide account holders?... if NASD required this back then, why didn’t they tell them? I’m sure they were in there reviewing general and AML compliance every year.
I’m wondering, how much of this longed-for monitoring would have led to SAR reporting that would have resulted in actual cases proving terrorist financing? Was that factored into the findings? (Oops, there I go again, forgetting that BD’s are law enforcement agencies charged with uncovering fraud and tax evasion, too.) Or is this finding just a hypothetical exercise in retroactive nit-picking for the sake of making an example out of the ‘failure’ or – I’m not really a cynic – to make money?
I have to admit: I see small firms being examined on the bare basics of AML and I find that FINRA continues to be gentle with these small firms. It’s almost like ‘principle-based’ compliance, but not really. It’s more like, “Okay, you’ve met the minimum requirements under 3011, but don’t forget to get exception reports” and all ends well. Personally, I’m okay with this, especially in the context of very small firms with a limited business whose clientele is local and very familiar. To expect anything more than token AML compliance is wrong in those cases. For bigger firms, yeah, sure, take it to the next level—but don’t mix subject areas and don’t retroactively apply developing standards to a time when AML was new and little understood. Even for the big firms that’s not fair. They are slow-moving beasts and should have been afforded a learning curve.
I think I’m too tolerant. That’s my problem. The world might very well be a charred sinkhole had it been under my watch until now. Never elect me President*.
(*Attorney General, maybe. I promise I’ll follow in Holder’s footsteps. --here I go again, with that tolerance thang.)
Thursday, October 15, 2009
Internal Testing of AML: Loophole Closed
Just yesterday I was blathering about the loophole in NASD IM-3011-1, which allows firms to have internal staff do annual testing of their AML programs. This rule lets firms have someone in the AML chain of command do the testing. The way it was written was always a bit curious: as if meant to strictly limit firms, but with a nice rabbit hole to jump into to safely avoid the limitation. Don't get me wrong: I've been a fan of the loophole, since I tend to sympathize with really small firms that have to meet onerous, big-firm requirements....and that's who would have relied on the loophole until now: very small firms with no staff remote enough from the AML staff and supervisor (usually the same person) to be considered independent. Well, thanks to FinCEN, these small firms will henceforth have no choice but to pay up for their annual independent AML testing.
You see, in Notice 09-60 FINRA announced its recent slate of rule consolidation changes. One of those is new FINRA Rule 3310, replacing NASD Rule 3011 and its IM's. The rule essentially stays the same except for the removal of the independence carve-out.
Firms can still appoint an internal staff member to conduct the testing, but that person must absolutely meet the following requirements:
1. The person must not perform the functions being tested,
2. The person may not be the designated AML compliance person, and
3. The person may not report to either anyone performing AML functions or the designated AML compliance person.
So if your firm is big enough such that you have senior staff who do not get involved at all in AML stuff, and you have employees who are well-versed in BSA/other AML requirements who do not do any AML work, you should be able to continue to rely on in-house AML testing.
The reason for the change? FINRA blames it on FinCEN, which stated that "the independent testing provision of the BSA precludes AML program testing by personnel with an interest in the outcome of the testing..." Seems reasonable--if you believe that our current AML rules, regulations and applied guidance have proven useful in fighting terrorism and if you believe that it is the role of the broker and the brokerage firm to police its clientele. Might seem unreasonable if you closely run a very small firm with a local, familiar clientele and have seen the cost of compliance sky-rocket right along with the increase in regulatory expectations, and you now have to pay a third-party to come in and verify the obvious: you're trying hard to follow the rules.
(Oops. I let myself go for a second, there... back to the subject at hand...)
The rule change is effective Jan. 1, 2010. You tiny firms out there will have to find someone to do your independent testing next year. (This is not a sales pitch, by the way--could you tell?)
You see, in Notice 09-60 FINRA announced its recent slate of rule consolidation changes. One of those is new FINRA Rule 3310, replacing NASD Rule 3011 and its IM's. The rule essentially stays the same except for the removal of the independence carve-out.
Firms can still appoint an internal staff member to conduct the testing, but that person must absolutely meet the following requirements:
1. The person must not perform the functions being tested,
2. The person may not be the designated AML compliance person, and
3. The person may not report to either anyone performing AML functions or the designated AML compliance person.
So if your firm is big enough such that you have senior staff who do not get involved at all in AML stuff, and you have employees who are well-versed in BSA/other AML requirements who do not do any AML work, you should be able to continue to rely on in-house AML testing.
The reason for the change? FINRA blames it on FinCEN, which stated that "the independent testing provision of the BSA precludes AML program testing by personnel with an interest in the outcome of the testing..." Seems reasonable--if you believe that our current AML rules, regulations and applied guidance have proven useful in fighting terrorism and if you believe that it is the role of the broker and the brokerage firm to police its clientele. Might seem unreasonable if you closely run a very small firm with a local, familiar clientele and have seen the cost of compliance sky-rocket right along with the increase in regulatory expectations, and you now have to pay a third-party to come in and verify the obvious: you're trying hard to follow the rules.
(Oops. I let myself go for a second, there... back to the subject at hand...)
The rule change is effective Jan. 1, 2010. You tiny firms out there will have to find someone to do your independent testing next year. (This is not a sales pitch, by the way--could you tell?)
Thursday, September 24, 2009
SIPC Assessments: Something You Might Not Know
...but which your accountant should know.
Okay, so you know by now that SIPC assessments went from a coins-under-the-couch-cushions-amount ($150) to a revenue-based number (.0025 of annual net operating revenues). This change happened as of April 1 and there are new assessment reporting forms that apply: see http://www.sipc.org/members/members.cfm for links to the new forms: Form 7T (interim reporting) and Form 6 (general form used for semi-annual reporting/payment). Depending on your fiscal year end, SIPC will mail you the correct forms to complete. You will be given credit for the $150 you might have paid earlier this year. But be prepared to pay a bunch more: firms making millions in revenue will pay tens of thousands.
The last time SIPC imposed a revenue-based assessment was 14 years ago. When the SIPC Fund balance gets low (under $1 billion), they invoke their right to raise money this way. If you're feeling sorry for yourself, maybe because your investors are institutions or otherwise won't be relying on SIPC coverage anytime soon, here's the theory behind this universal assessment: your business is dependent on a robust market; that market consists of individuals—they drive the market by virtue of their investments. Without them you wouldn’t do the business you do. You therefore benefit from the retail market in the end. And you want those investors to have confidence, some of which is provided by SIPC coverage. So you pay for SIPC, along with every other broker, regardless of your niche.
Onto the meaningful part of this message...
When your auditor does your annual audit, he/she has to remember to do an 'e-4 report.' That refers to paragraph (e)(4) of SEC Rule 17a-5: 'Reports to be made by certain brokers and dealers.' Your accountant knows to what to provide to FINRA and SEC, based on years of service in this industry. But now that the SIPC assessment is based on revenues, he/she has to provide this new item, too--and he/she may not know about it. It's basically a 'negative assurance letter' and will include either a schedule of payments to SIPC or copies of the assessment forms that were filed for the period. The bummer is, SIPC does NOT address this on its members site....they say it's an SEC Rule, not theirs, and that's why...but hey, give a BD a break! It would be nice if they provided clear guidance on this. I guess that's why I'm writing this entry--to introduce the subject and suggest that you talk to your auditor to make sure he/she is prepared to comply.
Here's the text from the SEC Rule that applies (from http://edocket.access.gpo.gov/cfr_2002/aprqtr/17cfr240.17a-5.htm):
The supplemental report, an original of which shall be submitted to the regional or district office of the Commission for the region or district in which the broker or dealer has its principal place of business, the Commission's principal office in Washington, the principal office of the designated examining authority for such broker or dealer and the office of SIPC, shall be bound separately, be dated and be signed manually, and shall include the following:
(i) A schedule of assessment payments also showing any overpayments applied and overpayments carried forward including: payment dates, amounts, and name of SIPC collection agent to whom mailed, or
The accountant's review on which his report is based shall include as a minimum the following procedures:
[Some of this is outdated due to changes in form names, but you get the idea.]
OH--and this 'e-4 report' has to go to SIPC, too. So include it in your filings with FINRA and SEC, and also send it (alone, not with the annual audited f/s) to SIPC.
Talk to your accountant; make sure this is clear. And chat it up over drinks, too. You'll impress your peers by being up on this subject way ahead of the crowd. Ah, the joys of compliance.
Okay, so you know by now that SIPC assessments went from a coins-under-the-couch-cushions-amount ($150) to a revenue-based number (.0025 of annual net operating revenues). This change happened as of April 1 and there are new assessment reporting forms that apply: see http://www.sipc.org/members/members.cfm for links to the new forms: Form 7T (interim reporting) and Form 6 (general form used for semi-annual reporting/payment). Depending on your fiscal year end, SIPC will mail you the correct forms to complete. You will be given credit for the $150 you might have paid earlier this year. But be prepared to pay a bunch more: firms making millions in revenue will pay tens of thousands.
The last time SIPC imposed a revenue-based assessment was 14 years ago. When the SIPC Fund balance gets low (under $1 billion), they invoke their right to raise money this way. If you're feeling sorry for yourself, maybe because your investors are institutions or otherwise won't be relying on SIPC coverage anytime soon, here's the theory behind this universal assessment: your business is dependent on a robust market; that market consists of individuals—they drive the market by virtue of their investments. Without them you wouldn’t do the business you do. You therefore benefit from the retail market in the end. And you want those investors to have confidence, some of which is provided by SIPC coverage. So you pay for SIPC, along with every other broker, regardless of your niche.
Onto the meaningful part of this message...
When your auditor does your annual audit, he/she has to remember to do an 'e-4 report.' That refers to paragraph (e)(4) of SEC Rule 17a-5: 'Reports to be made by certain brokers and dealers.' Your accountant knows to what to provide to FINRA and SEC, based on years of service in this industry. But now that the SIPC assessment is based on revenues, he/she has to provide this new item, too--and he/she may not know about it. It's basically a 'negative assurance letter' and will include either a schedule of payments to SIPC or copies of the assessment forms that were filed for the period. The bummer is, SIPC does NOT address this on its members site....they say it's an SEC Rule, not theirs, and that's why...but hey, give a BD a break! It would be nice if they provided clear guidance on this. I guess that's why I'm writing this entry--to introduce the subject and suggest that you talk to your auditor to make sure he/she is prepared to comply.
Here's the text from the SEC Rule that applies (from http://edocket.access.gpo.gov/cfr_2002/aprqtr/17cfr240.17a-5.htm):
(4) The broker or dealer shall file with the report a supplemental report which shall be covered by an opinion of the independent public accountant on the status of the membership of the broker or dealer in the Securities Investor Protection Corporation (``SIPC'') if, pursuant to paragraph (e)(1) of this section, a report of the broker or dealer is required to be covered by an opinion of a certified public accountant or a public accountant who is in fact independent. The supplemental report shall cover the SIPC annual general assessment reconciliation or exclusion from membership forms not previously reported on under this paragraph (e)(4) which were required to be filed on or prior to the date of the report required by paragraph (d) of this section: Provided, That the broker or dealer need not file the supplemental report on the SIPC annual general assessment reconciliation or exclusion from membership form for any period during which the SIPC assessment is a minimum assessment as provided for in section 4(d)(1)(c) of the Securities Investor Protection Act of 1970, as amended.
The supplemental report, an original of which shall be submitted to the regional or district office of the Commission for the region or district in which the broker or dealer has its principal place of business, the Commission's principal office in Washington, the principal office of the designated examining authority for such broker or dealer and the office of SIPC, shall be bound separately, be dated and be signed manually, and shall include the following:
(i) A schedule of assessment payments also showing any overpayments applied and overpayments carried forward including: payment dates, amounts, and name of SIPC collection agent to whom mailed, or
(ii) If exclusion from membership was claimed, a statement that the broker or dealer qualified for exclusion from membership under the Securities Investor Protection Act of 1970, and the date and name of the SIPC collection agent with whom a Certification of Exclusion from Membership (Form SIPC-3) was filed, and
(iii) An accountant's report which shall state that in the accountant's opinion either the assessments were determined fairly in accordance with applicable instructions and forms, or that a claim for exclusion from membership was consistent with income reported. If exceptions are noted, the accountant shall state any corrective action taken or proposed.
The accountant's review on which his report is based shall include as a minimum the following procedures:
(A) Comparison of listed assessment payments with respective cash disbursements record entries;
(B) For all or any portion of a fiscal year ending in 1976 and each fiscal year thereafter, comparison of amounts reflected in the annual report as required by paragraph (d) of this section, with amounts reported in the Annual General Assessment Reconciliation (Form SIPC-7);
(C) Comparison of adjustments reported in Form SIPC-7 with supporting schedules and working papers supporting adjustments;
(D) Proof of arithmetical accuracy of the calculations reflected in Form SIPC-7 and in the schedules and working papers supporting adjustments; and
(E) Comparison of the amount of any overpayment applied with the Form SIPC-7 on which it was computed; or
(F) If exclusion from membership is claimed, the accountant shall review the annual report required by paragraph (d) of this section for all or any portion of a fiscal year ending in 1976 and each fiscal year thereafter to ascertain that the Certification of Exclusion from Membership (Form SIPC-7) was consistent with the income reported.
[Some of this is outdated due to changes in form names, but you get the idea.]
OH--and this 'e-4 report' has to go to SIPC, too. So include it in your filings with FINRA and SEC, and also send it (alone, not with the annual audited f/s) to SIPC.
Talk to your accountant; make sure this is clear. And chat it up over drinks, too. You'll impress your peers by being up on this subject way ahead of the crowd. Ah, the joys of compliance.
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