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.
In an open letter to businesses Schapiro said: “certain forms of potential compensation may carry with them enhanced risks to customers.”
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.
Those pressures, she said “may in turn create incentives to engage in conduct that may violate obligations to investors.”
The letter also encourages broker-dealer firm chief executives to be “particularly vigilant” in ensuring that investor interests are carefully considered in the sale of any security or other investment product.
Schapiro said: “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.” Schapiro’s warning comes as the City has been urged to stop inflated remuneration in the financial services sector.