SEC Imposes New Compliance Rules on Broker-Dealers
The SEC has adopted rule amendments that impose additional compliance obligations on broker-dealers. A broker-dealer with custody of client assets will be required to file quarterly informational reports and an annual compliance report with the SEC verifying customer protections and also engage a PCAOB accountant to review the annual report. Broker-dealers without custody must file an exemption report. In addition, firms must agree to allow SEC staff to review accountant work papers. The SEC has also added some restrictions affecting how broker-dealers maintain customer cash including requiring affirmative consent for sweeps to money market funds or bank deposit products. The rule amendments also make firms treat certain assets as liabilities so that net capital will decrease, which may result in required cash support. The amendments affect rules 17a-5, 15c3-3, 15c3-1 and 17a-11.
OUR TAKE: In the regulatory aftermath of Madoff and MF Global, we should not be surprised by the added regulatory burdens. It’s another example of some bad firms making life very difficult for the rest of the industry. These rules will be costly for firms and time-consuming for their compliance and operations staffs.