More On Legal & Compliancefrom The Advisor's Professional Library
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
- Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communicationsto clients, from clients, and about client accounts. To comply with fiduciary obligations, communications must be thorough and not mislead.
Susquehanna Financial Group analyst David Hilder says Goldman Sachs and Morgan Stanley may consider dropping their status as bank holding companies to avoid increased costs related to the "Volcker rule," the latest fallout from the proprietary trading proposal released earlier this week.
The FDIC Board on Tuesday unanimously approved a notice of proposed rulemaking mandated under section 619 of Dodd-Frank that implemented the Volcker rule requirements. On Wednesday the Securities and Exchange Commission voted unanimously to follow suit.
Those requirements, amendments to the Bank Holding Company Act of 1956 and other prior legislation, are meant to address the systemic risk issues that arose during the 2008-09 financial crises.
A report by Bloomberg said, “Goldman Sachs and Morgan Stanley were the biggest U.S. securities firms before they converted to bank holding companies after the September 2008 bankruptcy of Lehman Brothers Holdings Inc. Both became subject to regulation by the Federal Reserve and won access to central bank programs such as the discount window, which are designed to protect deposit-taking banks.”
“The regulators have proposed a massive new compliance burden on banks to prove that their market-making activities are just that, and not proprietary trading in disguise,” Hilder wrote in his commentary Tuesday. “If these regulations are adopted in anything close to their proposed form, there will be large additional costs imposed on banks as market-makers that will not apply to market-makers not owned by banks.”
But David Konrad, a bank analyst at KBW Inc., told Bloomberg Goldman Sachs and Morgan Stanley are unlikely to change their status as bank holding companies to dodge the Volcker restrictions.
“If they tried to do that, Congress would amend the rule to say systemically important banks rather than bank holding companies,” Konrad said. “This is part protecting deposits, but also part too-big-to-fail. I don’t think there’s any interest from the investment banks in doing that, and I don’t think it would serve that purpose.”