The Financial Industry Regulatory Authority's top executive said federal regulators are “very likely” to force U.S. brokers to meet stricter requirements for acting in the best interests of their clients.
The Financial Industry Regulatory Authority's top executive said federal regulators are “very likely” to force U.S. brokers to meet stricter requirements for acting in the best interests of their clients.
The Securities and Exchange Commission may force brokers who give personalized advice to adopt the fiduciary standard applied to investment advisers, Finra Chief Executive Officer Richard Ketchum said today at a securities law conference in Coronado, California.
The Dodd-Frank regulatory overhaul enacted in July required the SEC to conduct a study, scheduled to be released this week, of whether brokers should be subjected to the more-stringent standard and authorized the agency to write new rules if it found they were needed. Brokers now face a suitability standard, under which they are forbidden to sell clients products that are inappropriate for their risk profiles.
Regulators may allow flexibility for brokers, Ketchum said. The SEC may let clients opt against holding their brokers to the higher standard or sign consent agreements on a trade-by-trade basis to let brokers to participate as a principal in a deal.
The SEC's $550 million settlement last year with Goldman Sachs Group Inc. has driven a fundamental rethinking in the U.S. and Europe about disclosure obligations for complex financial products, Ketchum said. Goldman Sachs, the most profitable firm in Wall Street history, was accused by the SEC of defrauding investors in a mortgage-linked product.
Finra, based in Washington, is the industry-funded regulation for U.S. brokerages.
--Bloomberg
