Tags: compliance | identity theft | sec

The Securities and Exchange Commission yesterday adopted rules requiring broker-dealers, mutual funds, investment advisers, and certain other entities regulated by the agency to adopt programs to detect red flags and prevent identity theft. For RIAs, it formalizes an obligation to have policies and procedures in place to protect clients from identity theft.

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Some history (paraphrasing from a statement by SEC Chair Mary Jo White):

In 2007, six federal agencies jointly adopted identity theft rules under the Fair Credit Reporting Act. Those agencies were the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the Federal Trade Commission. Their rules applied to business entities that qualify as “financial institutions” or “creditors” under the Fair Credit Reporting Act and offer or maintain certain types of accounts. Neither the SEC nor the CFTC adopted those identity theft rules in 2007, because the laws at that time did not authorize either of the Commissions to do so. Instead, entities that the SEC and CFTC regulate such as broker-dealers and futures commission merchants were covered by the rules of the six agencies.

The rules adopted yesterday unanimously by the SEC is substantially similar to the rules six federal agencies adopted in 2007, but they also include examples and guidance to help the relevant businesses determine how to comply with the new rules. On page 32 of the final rules released yesterday, RIAs and broker-dealers are provided guidance about what regulators expect them to do to comply. On page 106, a supplement provides details on “red flags” that RIAs and BDs should be prepared to spot to prevent identity theft of their clients.

“Any person who entrusts money to a financial institution or who receives money on credit can be vulnerable to those who may falsely pose as the individual and divert the money to a third party,” White said in a statement.

Notably, yesterday’s release included a video of the open meeting of the SEC and remarks by Commission Chair Mary Jo White. The agency does not normally release such video statements. As the agency seeks to become more open and transparent, the quality of such videos will likely improve.
 

Tags: regulation | sec

With the news today that former Securities and Exchange Commission Chair Mary Schapiro is taking a job at Promontory Financial Group, another powerful former regulator is headed to a lobbying and consulting firm to help thwart regulation of the people she used to prosecute. While you might have thought that the near-collapse of the financial system four years ago, which was largely due to regulatory failure by the SEC, would have brought about reforms to prevent such inlfuence peddling to continue, you would have been wrong. 

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"In my case, there's no revolving door…I won't ever be going back to government," the 57-year-old Ms. Schapiro said in an interview with The Wall Street Journal, which broke the news.. She decided that after spending "28 of the last 32 years as a regulator," now was the "right time…to do something different," WSJ reported.

The risk-management, regulatory and compliance consulting firm says that Schapiro will serve as a managing director and chairman of its governance and markets practice, according to The Washington Post.

Federal regulation of everything from autos to securities is corrupted by former regulators who switch sides, and Schapiro's new position is a continuation of that decades-old tradition. While it is accepted in Washington as business as usual, it quietly corrupts American government.

Promontory represents Wall Street. Since Schaipro only left the SEC four months ago, she knows how the agency works and its most infliuential players. She will be an effective consultant but there ought to be a law preventing former regulators to play the angles the outside world does not know even exists in order to help the people they once regulated escape, minimize and evade effective government regulation.

Tags: regulation

While here in the United States legislators are still grappling with overhauling the financial regulatory system that caused the world's financial financial crisis in 2008, British lawmakers have completed their remake of England's financial regualtors. 

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Tags: broker-dealers | compliance | FINRA | investment advisors | RIAs

The SEC s asking for hard data and other information from about the benefits and costs of the current standards of conduct for broker-dealers and investment advisers when providing advice to retail customers, as well as alternative approaches.

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Currently, two different laws govern how retail clients are served by financial advisors. The Securities Exchange Act of 1934 governs regulation of registered reps affiliated with BDs, while the Investment Advisers Act of 1940 sets the framework for regulating RIAs and invetsment adviser representatives. IA reps are fiduciaries and must do what's in their clients' best interest, while registered reps must offer advice based on what's most  suitable for clients. The SEC is considering how it can harmonize the rules so that consumers won't have to know that some advisors are governed by different standards of conduct and that some advisors switch between standards of conduct when advising a client.

The Commission is requesting quantitative data and economic analysis relating to the benefits and costs that could result from various alternative approaches regarding the standards of conduct.

You can post a comment and data in support of your opinion on the SEC website. The comment period will be open for four months, which means that the debate on applying a fiduciary standard will likely drag on through the third quarter of 2013.