Brokerage executives have been sent an open letter on compensation from the SEC chairmanWASHINGTON, DC - The chairman of the Securities and Exchange Commission (SEC), Mary Schapiro, has sent an open letter to US-regulated broker-dealers reminding them of their obligations to prevent abuses in sales practices fuelled by inappropriate bonus structures.
Schapiro's letter is in response to media reports that some broker-dealers have been engaging in recruitment programmes promising large bonuses and enhanced commissions.
"Recent press articles have reported that some broker-dealer firms may be engaging in a vigorous recruiting programme for broker-dealer registered representatives, including large up-front bonuses and enhanced commissions for sales of investment products," wrote Schapiro in the letter, noting chief executives have an obligation to police their policies for conflicts. "Certain forms of potential compensation may carry with them enhanced risks to customers," the letter continued.
Schapiro warns such compensation structures could lead representatives to believe they need to sell securities at a "sufficiently high level" to justify special arrangements they have received and that pressure could "create incentives to engage in conduct that may violate obligations to investors and lead to the sale of unsuitable investment products".
Click here to read the letter.
More on Regulation
NCDEX finds itself in conflict with government clearing house proposals
Regulator set to focus on backtesting and replicability of index products
2015 rules promise oversight increase
Recent Iosco consultation paper aims to better co-ordinate global regulation
Sign up for Risk.net email alerts
Oxford professor David Vines argues that the carrot is as important as the stick
Sponsored webinar: IBM
Watch highlights of this year's London conference
Operational risk and the challenges of defining and dealing with conduct risk
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.