More On Legal & Compliancefrom The Advisor's Professional Library
- The Need for Thorough and Effective Policies and Procedures Whethere an advisor is SEC or state-registered, RIAs must revise their policies and procedures to address significant compliance problems occurring during the year, changes in business arrangements, and regulatory developments.
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
The Securities and Exchange Commission (SEC) on Wednesday unanimously proposed amendments to its broker-dealer financial reporting rule in a move the agency said would strengthen "the audits of broker-dealers as well as the SEC’s oversight of the way broker-dealers handle their customers’ securities and cash."
The SEC’s proposal builds upon rules adopted in December 2009 that strengthened the protections provided to investors who turn their assets over to investment advisors.
The proposal is out for a 60-day comment period.
“When investors hand their assets over to a broker-dealer, they trust that their broker-dealer will hold and invest the assets as directed,” said SEC Chairman Mary Schapiro (left), in comments at the open meeting. “To protect investors and help maintain confidence in the market, we must take strong steps to help safeguard the assets held by broker-dealers.”
The SEC says that the proposal is intended “to strengthen the annual audits of broker-dealers by requiring an increased focus on the custody activities of broker-dealers. While current rules require broker-dealers to protect and account for customer assets, the proposed rule amendments would mandate an audit of the controls that the broker-dealer has put in place.”
Douglas Cohen, counsel in the investment management practice at the law firm Lowenstein Sandler, says that “while no reasonable person would argue against protecting client assets, it is unclear how the SEC’s proposed changes will actually improve existing custody requirements.” What is clear, he says, “is that affected broker-dealers will yet again be subjected to increased oversight and expense.”
In addition, the SEC says its proposal “would strengthen oversight of broker-dealer custody practices by requiring broker-dealers that maintain custody of customer assets or self-clear transactions to allow SEC staff and the relevant designated examining authority to review work papers of the public accounting firm that audits the broker-dealer and discuss any findings with the accounting firm.”
The proposed amendments also would “require all broker-dealers to quarterly file a proposed new form that would elicit information about the custody practices of the broker-dealer to be used as a starting point for examinations by regulators,” according to the SEC.