Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Thursday, June 16, 2011

SEC Proposes Ways to Strengthen Audits and Reporting of Broker-Dealers to Protect Customer Assets

The SEC proposed amendments to the broker-dealer financial reporting rule in order to 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 advisers.

The SEC’s 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.

Additionally, the 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.

Public comments on the SEC’s proposal should be received within 60 days of its publication in the Federal Register.

 

http://lawprofessors.typepad.com/securities/2011/06/sec-proposes-ways-to-strengthen-audits-and-reporting-of-broker-dealers-to-protect-customer-assets.html

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