2019 Form Custody Justification DGL REVIEWED

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Form Custody
A.

JUSTIFICATION
1.

Necessity of Information Collection

Section 17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)
(“Exchange Act”) provides that broker-dealers registered with the Securities and Exchange
Commission (“Commission”) must make and keep records, furnish copies of the records, and
make and disseminate reports as the Commission, by rule, prescribes. Pursuant to this authority,
the Commission adopted Rule 17a-5 (17 CFR 240.17a-5), which is one of the primary financial
and operational reporting rules for broker-dealers. 1 Paragraph (a)(5) of Rule 17a-5 requires every
broker-dealer registered with the Commission to file Form Custody (17 CFR 249.639) with its
designated examining authority (“DEA”) within 17 business days after the end of each calendar
quarter and within 17 business days after the end of the broker-dealer’s fiscal year if that date is
not the end of a calendar quarter. Form Custody is designed to elicit information about whether a
broker-dealer maintains custody of customer and non-customer assets, and, if so, how such assets
are maintained.
2.

Purpose and Use of the Information Collection

The purpose of Form Custody is to provide information about the custodial activities of
broker-dealers that can serve as a starting point for Commission and DEA examiners to
undertake more in-depth reviews of these activities as they deem appropriate.
3.

Consideration Given to Information Technology

Form Custody is generally filed electronically with the broker-dealer’s DEA.
4.

Duplication

The Commission is aware that some overlap exists between the information collected
from investment advisers on Form ADV and the information collected from broker-dealers
dually-registered as investment advisers in Item 8 of Form Custody. However, these two forms
also contain a significant amount of non-overlapping material, reflecting their different purposes
and uses. Form Custody is intended to be a single source of readily-available information to
assist Commission and DEA examiners in preparing for and performing focused custody exams,
and it is particularly important that such information be readily available in the case of duallyregistered firms.

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Rule 17a-5 is subject to a separate Paperwork Reduction Act (“PRA”) filing (Office of Management and
Budget (“OMB”) Control Number 3235-0123).

5.

Effect on Small Entities

The Commission believes that the burden associated with Form Custody would generally
be lower for smaller broker-dealers because smaller broker-dealers generally do not clear
transactions or carry customer accounts, and such a firm would generally not need to enter
detailed information on the form.
6.

Consequences of Not Conducting Collection

If the required reports were not made, or were made less frequently, it would impair the
Commission’s and the DEAs’ ability to detect fraudulent conduct by investment advisers and
broker-dealers, including, among other things, misappropriation or other misuse of customer
securities and funds. Further, if the required collections were conducted less frequently, the
information in the reports would become outdated.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting comments
on this collection of information was published. No public comments were received.
9.

Payment or Gift

No payment or gift was provided to respondents.
10.

Confidentiality

Pursuant to paragraph (a)(3) of Rule 17a-5, Form Custody is deemed to be confidential.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection does not collect personally
identifiable information (PII). The agency has determined that a system of records notice (SORN)
and privacy impact assessment (PIA) are not required in connection with the collection of
information.
12.

Burden of Information Collection

As noted above, all broker-dealers registered with the Commission are required to file
Form Custody with their DEA once each calendar quarter. The Commission estimates that there

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are approximately 3,747 broker-dealers registered with the Commission. Based on staff
experience, the Commission estimates that, on average, it would take a broker-dealer
approximately 12 hours to complete and file Form Custody, for an annual industry-wide
reporting burden of approximately 179,856 hours. 2 Assuming an average cost per hour of
approximately $314 for a compliance manager, the total internal cost of compliance for the
respondents is approximately $56,474,784 per year.3
Rule

Burden Type

Number of
Respondents

Form
Custody

Periodic
Reporting

3,747

13.

Number of
Annual
Responses
per
Respondent
4

Time per
Response

Total
Burden

12

179,856

Costs to Respondents

Other than the costs associated with the burden of information collection discussed in
Item 12 above, Form Custody does not impose any additional costs on respondents.
14.

Costs to Federal Government

There are no costs to the Federal Government associated with Form Custody.
15.

Changes in Burden

The annual reporting burden has decreased from 197,424 hours to 179,856 hours due to a
decrease in the number of respondents from 4,113 to 3,747.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration

The Commission is not seeking approval to omit the expiration date.
18.
2
3

Exceptions to Certification for PRA Submissions

3,747 brokers-dealers x 4 times per year x 12 hours = 179,856 hours.
179,856 hours times $314 per hour = $56,474,784 . $314 per hour for a compliance manager is from
SIFMA's Management & Professional Earnings in the Securities Industry 2013, modified by Commission
staff for an 1800-hour work-year, multiplied by 5.35 to account for bonuses, firm size, employee benefits,
and overhead, and adjusted for inflation.

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This collection complies with the requirements in 5 CFR 1320.9.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
This collection does not involve statistical methods.

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