US regulator may strengthen broker-dealer audit

BROKER-DEALER AUDIT is under the microscope in the US, as the Securities and Exchange Commission is considering strengthening the rules to protect customer assets.

The proposal would also boost regulators’ ability to oversee the way broker-dealers – employed to carry out securities transactions – maintain custody of clients’ assets.

At an open meeting, chairman Mary Schapiro (pictured) said: “The fact is that when investors hand their assets over to a broker-dealer, they trust that their broker-dealer will hold and invest the assets as directed …To protect investors and help maintain confidence in the market, I believe we must take strong steps to help safeguard the assets held by broker-dealers.”

Strengthening the audit of companies working in sensitive sectors could lead to firmer safeguards on a larger scale, potentially signaling that the SEC is moving into a period of harsher regulatory control.

Under the proposals, broker-dealers would be required to submit to an audit showing whether they: file annual reports with the correct authorities; produce audited financial statements, supporting schedules and supplemental reports; use a Pubic Company Accounting Oversight Board-approved auditor. They would also have to report on their controls for complying with these rules.

Current rules stipulate that businesses must follow the four rules mentioned, but the requirement to audit the process adds an extra layer of surveillance to the procedure.

Broker-dealers that do not maintain custody of client securities and cash have lower reporting requirements, but would be subject to a review by a public accountant to prove they do not have custody of the assets.

Stakeholders are invited to comment on the proposals, and the feedback period lasts for 60 days after publication in the Federal Register.