Books and Records: A Revision May Finally Be Coming

ByChris Payne

Advisers Act Rule 204-2 was adopted in 1961. It is the longest rule under the Advisers Act by word count, has rarely been amended in 65 years, and still contemplates records preserved on “microfilm, microfiche, or any similar medium.” Brian Daly, Director of the Division of Investment Management, described the problem in a December speech: “The world the recordkeeping rule was built for no longer exists. Today, we live in a digital, cloud-based, multi-platform environment. Yet the language of the rule still reflects a paper-based mindset.”

Why the Pressure Is Building Now

By the count the Investment Adviser Association (IAA) and the Investment Company Institute submitted to the Commission this spring, the SEC has brought 95 actions and imposed $2.3 billion in penalties since 2022 against firms, including investment advisers, for books and records violations tied to off-channel communications. Those groups argue that a rule drafted for paper produced enforcement outcomes with little connection to investor harm. The Rule 204-2 item on the 2026 agenda is the first concrete signal the Commission may act, and the IAA reports that revising the rule is a priority for Chairman Atkins.

What the Industry Is Asking For

The IAA and the Investment Company Institute have urged a principles-based, technology-neutral rule that leaves the choice of preservation technology to advisers rather than the government. They have also proposed a new Advisers Act Section 203(e)(6) that would create a failure-to-supervise safe harbor for a firm that establishes procedures, and a system for applying them, reasonably expected to prevent and detect employee violations, where the supervisor reasonably discharged their duties without cause to believe the procedures were not being followed.

The Securities Industry and Financial Markets Association (SIFMA) has proposed narrowing the retention obligation to written communications that relate substantively to specified advisory activities. The categories it identifies are recommendations and advice, movement of funds or securities, order placement and execution, and performance information.

Communications SIFMA Would Exclude

  • System-generated or system-displayed text derived from oral communications.
  • Electronic transcripts, summaries, videos, or recordings of oral communications.
  • Text entered into collaborative tools or platforms that allow multiple users to edit or view content.
  • Text available in or downloadable from a data room, website, or repository, whether operated by the adviser or a third party.

Why This Matters Operationally

Modern adviser systems generate enormous volumes of content that may not represent a substantive business communication at all. Automatic meeting transcripts, artificial intelligence summaries, shared workspaces, and data-room contents can create retention obligations that are difficult to define, expensive to capture, and nearly impossible to supervise. Both the SIFMA and IAA approaches would refocus the rule on the substance of a communication rather than the technology used to create or display it.

The important word in any future rule will be “substantively.” Whether a record relates substantively to advisory business is a judgment your policies will need to make repeatably, and to document.

What to Do Now

  • Continue complying with Rule 204-2 exactly as written. Nothing has been proposed, let alone adopted.
  • Do not delete or stop retaining records based on the SIFMA or IAA language. These are industry recommendations, not law.
  • Maintain clear policies identifying approved communication channels, and train personnel on what they may and may not use.
  • Obtain periodic employee certifications acknowledging the off-channel communications policy.
  • Use risk-based surveillance to test whether personnel are using unapproved channels, rather than relying on certifications alone.

Map which systems in your environment create transcripts, summaries, collaboration records, or artificial intelligence output, and determine how each of those records is currently retained. This inventory is useful whether or not the rule changes.

Takeaways

  • Current retention duties remain fully in force. No amendment has been proposed.
  • The debate will center on whether a record relates substantively to advisory business, not on the application or format it appears in.
  • Off-channel communications remain the single largest source of books and records penalties, by industry estimates 95 actions and $2.3 billion since 2022.
  • Map how your artificial intelligence tools, meeting platforms, and collaboration systems create and store records before a proposal arrives.
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