Reuters: Regulatory News: U.S. SEC: brokers need better controls on confidential material

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U.S. SEC: brokers need better controls on confidential material Sep 27th 2012, 19:09 By Sarah N. Lynch WASHINGTON, Sept 27 | Thu Sep 27, 2012 3:09pm EDT WASHINGTON, Sept 27 (Reuters) - U.S. securities regulators on Thursday said many broker-dealers are not doing enough to control access to confidential information to prevent opportunities for insider trading and to reduce conflicts of interest. The findings come in a 52-page report that outlines the results of inspections by the Securities and Exchange Commission, the Financial Industry Regulatory Authority and the New York Stock Exchange's market regulation division. Exams centered on how business practices and new technologies affect broker-dealers' compliance with federal securities laws that require firms to protect material, non-public information so it cannot be used for illegal activities. No firms were identified. The law requires brokerages to establish and maintain written policies to protect confidential data. In a summary of its findings, the SEC said it found instances where the interactions between brokerage staff with confidential knowledge and other internal and outside groups were not well-documented. The SEC also said that in some cases, senior executives gained access to confidential information without any related monitoring or restrictions. Many of these executives, the SEC said, served in managerial roles over business units engaged in sales and trading. This "raises serious concerns about the ability of broker-dealers to guard adequately against misuse of material non-public information in firm and customer trading," the SEC said. The SEC found gaps in oversight of some type at most of the broker-dealers, though the agency noted that the gaps differed. The SEC said the problems uncovered were not necessarily violations of the law. But they hope the report will help strengthen compliance programs at broker-dealers. "This report should help broker-dealers assess the effectiveness of their controls over sensitive information," said Carlo di Florio, the director of the SEC's Office of Compliance Inspections and Examinations. The SEC said it also found some good practices during the exams. Some brokerages were expanding the scope of their reviews for potential misuse of information to cover more financial instruments, such as credit-default swaps. It also said some firms have developed processes to differentiate between the types of confidential information based on where it originated. Link this Share this Digg this Email Reprints

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