SEC to toughen custody rules for broker-dealers

By Rachelle Younglai

WASHINGTON (BestGrowthStock) – The top U.S. securities regulator said on Monday that she plans to hold broker-dealers more accountable for their customers’ assets after Bernard Madoff duped his clients out of billions of dollars.

“We are considering enhancing oversight of broker-dealer custody by providing new information and tools to regulatory examiners,” U.S. Securities and Exchange Commission Chairman Mary Schapiro said at an accounting conference.

Months after Madoff was arrested in late 2008 for operating his epic Ponzi scheme, the SEC beefed up its oversight of investment advisers.

Madoff’s investment advisory business was registered with the SEC. He was also registered as a broker-dealer and supervised by the SEC and industry-funded watchdog the Financial Industry Regulatory Authority .

The SEC’s rule subjects some 1,600 investment advisers who physically hold their customers’ assets to a surprise audit to ensure that the assets are really there.

Now the SEC is mulling ways to improve auditors’ oversight of broker-dealers.

Currently, law requires auditors to provide assurances that the broker-dealers’ numbers are accurate, and that their controls are in place. But that rule is nearly 30 years old.

“We are considering strengthening compliance and controls,” Schapiro told conference the American Institute of Certified Public Accountants.

Schapiro did not provide a timeline for the rulemaking.


Separately, Schapiro said the SEC would decide in 2011 whether to replace domestic accounting rules with international standards — now used in more than 100 countries.

If the SEC decides to move U.S. companies to the International Financial Reporting Standards, or IFRS, Schapiro said there would be a minimum four-year implementation period.

While the SEC grapples with how to transition companies to the international rules, U.S. and international accounting rule makers are trying to develop a single set of global accounting rules.

“Convergence is a top priority for the SEC,” Schapiro said, adding that the new standards must be improvements over the current rules.

This move to one set of accounting standards comes as U.S. regulators are reshaping the supervision of the financial system and Wall Street. Under the Dodd-Frank legislation, enacted in July, the SEC must adopt more than 100 new rules for markets and financial players.

(Reporting by Rachelle Younglai; Editing by Derek Caney and Tim Dobbyn)

SEC to toughen custody rules for broker-dealers