By Suzanne Barlyn
Aug 3 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
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
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
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
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.