US regulator warns brokers to cut out risky sales tactics

THE head of the US Securities and Exchange Commission Mary Schapiro last night issued a stern warning to chief executives at brokerage firms about questionable incentives.<br /><br />In an open letter to businesses Schapiro said: &ldquo;certain forms of potential compensation may carry with them enhanced risks to customers.&rdquo;<br /><br />Schapiro cautioned that some types of compensation practices may lead brokers to believe that they must sell securities at a sufficiently high levels to justify special pay arrangements that they have been given.<br /><br />Those pressures, she said &ldquo;may in turn create incentives to engage in conduct that may violate obligations to investors.&rdquo;<br /><br />The letter also encourages broker-dealer firm chief executives to be &ldquo;particularly vigilant&rdquo; in ensuring that investor interests are carefully considered in the sale of any security or other investment product.<br /><br />Schapiro said: &ldquo;I want to remind broker-dealer firms and their CEOs of the significant supervisory responsibilities you have under the federal securities laws to oversee broker-dealer activities, particularly with respect to sales practices.&rdquo; Schapiro&rsquo;s warning comes as the City has been urged to stop inflated remuneration in the financial services sector.