How Teams Are Improving SEC Rule 15c3-5 Compliance

As explained by FINRA, trading on securities exchanges and alternative trading systems (ATS) has become faster and more automated in recent years, bringing additional risk along with it.

To mitigate these concerns related to market access—thereby enhancing market integrity and investor protection in the securities markets—the Securities and Exchange Commission (SEC) adopted Rule 15c3-5 in 2010.

In recent years, regulators began cracking down harder on the rule, which requires careful documentation to demonstrate risk management and supervisory procedures.

Until recently, the financial reporting and compliance regulations innate to Rule 15c3-5 were a tedious process—manually copying and pasting data into spreadsheets and presentations. However, with the right technology, firms can boost their efficiency when compiling the necessary documents.

Here is information about complying to Rule 15c3-5 and how technology can assist.

What brokers and dealers need to know about Rule 15c3-5

SEC Rule 15c3-5 requires firms with market access to create and maintain risk management controls, policies, and procedures to manage operational risks associated with having access to trading securities directly or through ATS.

According to the SEC's final rule on this topic, the purpose of maintaining this system of risk management controls is twofold:

1. To limit the financial exposure of the broker or dealer if they have market access
2. To ensure compliance with all regulatory requirements that are applicable in connection with market access

How will this affect my organization?

For each trading system a firm has access to, there are several pieces of compliance documentation required to ensure the validity and accuracy of risk management controls and supervisory procedure documents. Not only will compliance documentation be under careful scrutiny, but company policies and procedures must be signed off to fully comply with the standards.

Once that documentation is completed, there are multiple levels of review across the firm, which is often where problems arise. The legacy, desktop-based spreadsheet and document tools many companies use for financial reporting and compliance are not well suited for the creation of these reports.

With these tools, the Rule 15c3-5 compliance process is manual, and failing to accurately comply subjects multiple areas within the organization to heightened risk and stiff fines. In fact, in February 2019, the SEC levied a $210,000 fine to a firm that was noncompliant to the rule.

That said, today, technology is available to automate and streamline the report creation process.

How can my organization improve?

In light of the SEC's push to rein in compliance, companies should reevaluate the methods they internally employ to create critical reports.

Workiva offers a centralized cloud platform for all pieces of required compliance documentation. Teams can create, review, sign off, and submit reports from one location, offering auditors and regulators full transparency throughout the reporting cycle.

Through its version control capabilities, every update made to a risk management or controls document is added to a full audit trail of changes, where you can see who made the change and when. Linking data across documents and spreadsheets also ensures consistency, accuracy, and easy updating for filing.

For brokers and dealers facing the Rule 15c3-5 compliance process, the writing is on the wall: cutting down on manual tasks and reducing inherent risk through a sustainable, repeatable, and auditable process is necessary for proper compliance. And, that is best handled by revisiting the technology your team uses.

Key takeaways

• SEC Rule 15c3-5 is a document-heavy process that is gaining more scrutiny from regulators
• Keeping files in a centralized location improves accessibility and organization
• Teams can maintain control through a consistent, standardized format
• Preparing a streamlined and trackable multilevel review process will set the stage for success

Keep your Rule 15c3-5 compliance processes efficient with Workiva. Contact us to learn more.