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SEC Amends Financial Responsibility and Custody Rules
9 August 2013
The SEC has adopted amendments to Rule 15c3-1 that, among other things, clarify the regulatory capital treatment of (i) liabilities assumed by third parties, (ii) capital infusions that are, or are permitted to be, withdrawn within one year of their making, and (iii) securities loans/borrows and repos/reverse repos not done on an agency basis without recourse to the broker-dealer.
The SEC also amended Rule 15c3-3 to, among other things, (i) provide additional protections for the assets of broker-dealer customers of a broker-dealer, (ii) prevent broker-dealers from depositing reserve account cash with affiliated banks, (iii) prevent broker-dealers from treating as reserve account deposit amounts greater than 15% of an unaffiliated bank’s equity capital, and (iv) require disclosures and consent in connection with automatic sweeps of customer cash into money market mutual funds or bank deposit accounts.
The SEC implemented new regulatory notification and audit requirements with respect to the custody activities of broker-dealers that require, among other things, (i) filing reports with the SEC concerning those activities, (ii) retaining a PCAOB-qualified independent public accountant to audit those reports, (iii) producing audit documentation and work papers to regulators upon request, and (iv) filing new Form Custody, detailing information about its clearing and custody arrangements.
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