FS Chatroom | SEC Extension for Broker-Dealer Annual Reporting Deadline

February 17, 2021

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The SEC issued a release extending the annual reporting filing deadline for certain smaller broker-dealers by 30 calendar days. The SEC’s release points out some of the challenges that firms and broker-dealers faced under the short 60-day window.

DISCLAIMER: All information shared on this podcast extends from reputable sources. The views expressed here are meant to serve as suggestive guidance, based on the knowledge and expertise of the host and guests.

Speakers:
Charles Abraham | Email: Charles.Abraham@MazarsUSA.com
Samuel Pizzichillo | Email: Samuel.Pizzichillo@MazarsUSA.com

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Charles Abraham
Hello, everybody, my name is Charles Abraham from Mazars, and I'm joined here by Sam Pizzichillo, who's also one of the members of our Mazars financial service team. We are recording this today on February 14. And we want to wish everyone a happy Valentine's Day. Sam, I can't think of a better person to spend Valentine's Day than with you and especially talking about the SEC. So we're doing the podcast today just to bring an SEC order that was just issued to your attention.

Charles Abraham
Sam, tell us about the order. Why are we here?

Samuel Pizzichillo
All right, well, I'm happy to be spending time with you today as well Charles. So on February 12th, the SEC issued a release extending the annual reporting filing deadline for certain smaller broker-dealers by 30 calendar days. So if a broker-dealer qualifies, the typical 60-day deadline now becomes a 90-day deadline. The release points out some of the challenges that audit firms and broker-dealers faced under the short 60-day window.

Samuel Pizzichillo
Most broker-dealers have a calendar year end. So industry-wide, a lot of work was compressed into January and February. And since the December FOCUS isn't required to be filed until the 17th business day after the period closes, the window was even shorter for auditing balance sheet items.

Charles Abraham
No you're right.

Charles Abraham
And according to the order, the SEC had noted that FINRA had requested this 30 day extension. Right. So some of the points that FINRA had brought up were that it reduces some of the burdens on smaller broker-dealers because they were able to get their audit, external consulting, external FINOPs to have a little bit more time to file and their external teams would be available to get those audits done

Samuel Pizzichillo
right.

Samuel Pizzichillo
Part of that had to do with the fact that many of the auditors of these small broker-dealers usually don't perform interim audit procedures. And most smaller broker dealers have manual processes which require a substantive audit approach to be used. And that can take a long time.

Charles Abraham
Yeah, those are valid points.

Charles Abraham
So, you know, I can see this having many different reactions in the marketplace. And Sam you audit a bunch of broker-dealers. you're very familiar with the centers of influence in the marketplace. Give me some thoughts on what you think the response will be.

Samuel Pizzichillo
Well, Charles, that's a great question. And although the guidance only came out a couple of days ago, we have had a chance to speak with some of our contacts. So, first off, from my perspective, I believe that the increase in time can provide for improvement in audit quality, if that time is used appropriately. So the extra 30 days may allow audit firms to carry out their procedures as initially planned, as opposed to defaulting to alternative procedures due to the time restrictions.

Samuel Pizzichillo
But some clients and FINOPs are concerned that the audit firms will just drag their feet for 30 days and there won't be much of a difference. As of today, we are 45 days into what we believed was the 60 day period and many different audits are roughly 75 percent or more complete. So at this point, for this year, most people aren't looking to extend the timeline if it isn't necessary.

Charles Abraham
So let's talk about which broker-dealers this extension would apply to.

Charles Abraham
When the SEC order says smaller broker-dealers, I assume it means broker-dealers that file the exemption report. What are some of the other requirements?

Samuel Pizzichillo
That's right. So to be eligible for the extra 30 days, a broker-dealer must be in net capital compliance at year-end. And the broker-dealer must have less than 50 million in capital and allowable subordinated liabilities as of the year-end. And as you mentioned, the broker-dealer must be filing an exemption report since the regulators view firms that don't need to comply with the customer protection rule as being less risky than those who do.

Charles Abraham
Got it. Got it. So here's what a broker-dealers who want to get the extension have to do. Number one, they have to submit a written notification to FINRA, that they're going to rely on this SEC order. And they can use that on an ongoing basis, as long as they comply with the requirements that you spoke about, which is you know, stay in net capital compliance, less than 50 million in total capital and sub debt, and those are the key requirements, and that they file an exemption.

Charles Abraham
So the other point that the SEC notes is that the broker-dealer must also file their annual report electronically with the Commission. So I think that sort of covers the SEC order. And I hope everybody had a good Valentine's Day and a good Valentine's Day weekend. We appreciate you joining us for the short podcast. Thank you so much.

Samuel Pizzichillo
Thank you.

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FS Chatroom | SEC Extension for Broker-Dealer Annual Reporting Deadline

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