By Christopher L. Wallace, CPA, Business Assurance & Advisory Services Partner | Financial Services Industry Team Leader
Legislation would ease audit requirements for small broker-dealer firms
On Wednesday, October 30, 2019, a bipartisan group of senators introduced legislation that would ease audit requirements for small businesses that are regulated as brokers and dealers in securities, which includes certain retail brokerages, private placement firms, and investment banking organizations.
One of the components of the Dodd Frank Act of 2010 amended the Sarbanes Oxley Act to require auditors of all broker-dealers to register with the Public Accounting Oversight Board (PCAOB), and thus all broker-dealer audits, even those of very small privately held businesses, became subject to PCAOB audit requirements. Many of the PCAOB audit requirements are developed with intentions toward protecting investors of large, multi-national public companies.
“Requiring our small non-custodial broker-dealers to get the same audits required of public companies only results in higher costs and fewer small firms, and all because of a provision that wasn’t even supposed to be aimed at non-custodial firms,” said Senator Tom Cotton, R-Ark, the bill’s author along with Senators Thom Tillis, R-NC., Doug Jones, D-Ala, and Krysten Sinema, D-Ariz.
Mr. Cotton elaborated, “This bill will return audit requirements to the former standard, one appropriate for these kinds of firms and which will allow our small broker-dealers to expand and help create more jobs.”
The House Financial Services Committee approved similar legislation last year, but it failed to get a vote on the House Floor and no action was taken in the Senate. Many Democrats on the House panel opposed the bill last year, but the Senate version has made several modifications in terms of defining what constitutes a “small” firm, including having fewer than 151 registered representatives and excluding any advisory firm that custodies assets from qualifying for audit relief.
The next step in the legislative process would be for the Senate Banking Committee to hold a hearing on the bill, and there is uncertainty if that will happen before the end of the calendar year.
Our team at Keiter is very supportive of this initiative. We encourage you to reach out to your congressional representative and voice support for this practical and common sense alternative.
We will continue to monitor and keep you updated on this and other legislation that may impact our clients in the financial services industry.
Additional Broker-Dealer Resources
- Updates on Regulation Best Interest (Reg BI)
- Senior Investor Protection: What Broker-Dealers and Investment Advisors Need to Know
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.