RPT-FINRA withdraws customer account statement plan
By Suzanne Barlyn
Aug 3 (Reuters) - A proposal that would have required brokerages to send account statements to their customers more frequently has been scrapped - at least for now.
The Financial Industry Regulatory Authority on Thursday withdrew a plan it originally submitted for approval by the U.S. Securities and Exchange Commission in 2009 that would have enhanced existing securities industry rules on how often firms must send statements, according to an SEC notice. It is unclear why FINRA, Wall Street's industry-funded watchdog, withdrew the proposal. A FINRA spokeswoman declined to immediately comment.
FINRA's plan would have required brokerages to send monthly statements to customers if certain activity, such as stock trades or withdrawals, occurred in their accounts after their quarterly statement was prepared. That measure would help protect investors against fraud and errors, wrote FINRA in the original proposal.
Securities industry trade groups and brokerages, however, balked at the proposal in comment letters, questioning the usefulness of paper statements in a digital age and raising concerns about potential conflicts with other regulations. Wasting paper was another concern, according to a regulatory notice.
The scrapped proposal highlights the long process of developing new rules governing brokers and advisers in the face of industry opposition and other factors. The proposal was pending at the SEC for more than three years, but that is not an unusually long time, according to Gerald Baker, a compliance consultant in Kewadin, Michigan. SEC staffing changes, the Dodd-Frank financial reform law, and the time it takes to respond to comment letters the SEC receives during the process, often mean a years-long wait, he said.
Self-regulatory organizations occasionally withdraw proposals to re-craft them and for other reasons, say compliance professionals. Some self-regulatory organizations are now also withdrawing proposals they do not expect will be approved before a new process at the SEC - one that could mean even more red-tape - takes effect. They can refile the proposal at a later time.
Self-regulatory organizations are also worried about potential lawsuits stemming from the costs of their rules to the industry, compared to the benefits, said John Coffee, a professor at Columbia Law School and authority on securities regulation. "There is a growing fear," he said.
FINRA, in 2011, revised the proposal in response to certain securities industry concerns. FINRA's changes included crafting some exceptions to the circumstances in which brokerages would have to send monthly statements, such as transfers of un-invested assets into and out of money market funds as part of so-called automatic "sweep" programs.
The relevance of account statements in a changing world is one issue the brokerage industry has played up in efforts to revise the proposal. A 2009 comment letter from the Securities Industry and Financial Markets Association, the retail brokerage industry's trade group, notes that online account access and customer service call centers supplanted the need for customer account statements.
But others disagree. Receiving paper statements regularly is still critical to older and retired investors, many of whom do not know how to use the Internet, said Adam Gana, a New York-based securities arbitration lawyer in an interview.
One of his clients spoke to a brokerage customer service representative for hours to get a user name and password, but still could not figure out the process, he said. Additional notice about account activity could help those types of investors to avoid frauds, he said.