Internal Control Over Compliance (ICOC) Best Practices

ACI always adheres to ICOC best practices and builds sustainable internal control frameworks for its broker-dealer clients, tailored to your specific operational and regulatory obligations.

Our services related to ICOC best practices include:

Net Capital Compliance (SEC Rule 15c3-1)

Accurate and timely FOCUS Reports have been a core broker-dealer service at ACI for over 40 years. We handle all elements of 15c3-1 compliance and FOCUS reporting in a manner that is consistent with best practices under ICOC frameworks.

Customer Reserve (SEC Rule 15c3-3)

Weekly and monthly customer and PAB reserve computations are a critical component of SEC Rule 15c3-3. ACI’s operations team has expertise in preparation, review and automation related to these computations for a diverse set of carrying and clearing broker-dealers adhering to ICOC frameworks. Business lines include: correspondent clearing, self-clearing, FDIC sweep, money market fund sweep, securities lending, margin lending, matched book lending, short sales, fixed income, embedded finance models and more.

Possession and Control (SEC Rule 15c3-3)

Broker-dealers must physically hold or control customers’ fully paid or excess margin securities in a good control location, and cannot comingle these securities with firm securities or use them for their own business. ACI ensures consistent best practices under ICOC frameworks.

Customer Statements (FINRA Rule 2231)

Customer statement review is an important control area. ACI helps ensure that customer account statements are complete, accurate and adherent to ICOC procedures.

Development of Subledger Chart of Accounts Coding

Accurate subledger design underpins reliable reporting, reconciliation and compliance. ACI develops and implements Chart of Account structures aligned with your operational model, regulatory needs and ICOC frameworks.

Conversion Support to Omnibus/Self-Clearing Structures

Switching to an omnibus or self-clearing model involves more than operational change – it reshapes your regulatory responsibilities and ICOC procedures. ACI helps ensure a compliant, well-controlled transition.

Flow of Funds Modeling

ACI creates dynamic, ICOC-adherent funds flow models tailored to operational realities and compliance needs – so you can always understand and explain how money moves through your organization.

Questions on ICOC best practices or ACI’s services? Here’s what you need to know.

What is Internal Control Over Compliance (ICOC)?

Internal Control Over Compliance (ICOC) encompasses controls designed to ensure broker-dealers detect and prevent non-compliance with key financial responsibility rules – like SEC Rules 15c3-1, 15c3-3 and 17a-13 – as well as Designated Examining Authority (i.e., FINRA) account-statement obligations. Firms must attest annually that ICOC is effective, and auditors will assess any material weaknesses.

How does subledger chart of accounts coding support compliance?

A well-designed subledger coding structure ensures that transactions are classified correctly – by business line, asset type and regulatory category. This improves reporting accuracy, increases audit trail clarity and reduces misclassification risks that can impair ICOC effectiveness.

What does Rule 17a-13 require for quarterly security counts?

SEC Rule 17a-13 mandates that broker-dealers conduct a full securities count in each calendar quarter – no more than four months apart – reconciling holdings in Good Control with the broker-dealer’s books and records and following up on discrepancies within seven business days to avoid a charge.

What is liquidity stress testing (proposed FINRA Rule 4610), and how does it fit into ICOC?

FINRA Reg Notice 23-11, released in June 2023, outlines a broker-dealer’s potential obligations to monitor firm liquidity and perform a monthly stress test. Given a version of this rule is forthcoming, many clients have chosen to develop stress testing procedures. A liquidity stress test is a forward-looking model that forecasts cash and collateral needs over multiple time horizons and stress scenarios. It supports contingency planning, improves regulatory reporting and provides documented controls for exams. FINRA is already asking carrying/clearing firms to provide a stress test during cycle exams and New Member Applications.

Why is ICOC important for broker-dealers?

Regulators use ICOC frameworks to evaluate whether firms have adequate controls to protect customer assets, accurately report finances and manage liquidity risks. Inadequate ICOC can lead to enforcement action, audit deficiencies or damaged reputations.

How does flow of funds modeling enhance ICOC?

Flow of funds modeling gives firms clarity over daily cash and collateral movements, enables stress testing, identifies timing mismatches and informs funding strategies. Understanding the 15c3-1 and 15c3-3 implications of banks and settlement counterparties within the broker-dealer’s operational model is essential to ICOC compliance.

What are the ICOC considerations when transitioning to an omnibus or self-clearing model?

Shifting to an omnibus or self-clearing arrangement significantly expands a firm’s operational responsibilities – and with that, its internal control obligations. As clearing functions move in-house, firms must reassess and document control frameworks around trade capture, settlement, reconciliation, customer asset protection and regulatory reporting. ICOC best practices call for restructured workflows, clear segregation of duties, enhanced system oversight and updated policies to reflect the expanded control environment.