Broker-dealers and investment advisers should be subject to the same fiduciary standard of conduct and heightened regulations when providing the same services, Securities and Exchange Commission Chairman Mary Schapiro said in prepared testimony today before the Financial Crisis Inquiry Commission.
In her testimony on the causes of the financial crisis, Ms. Schapiro took the opportunity to reiterate her call for bringing regulation of broker and adviser into line.
“When investors receive similar services from similar financial servicer providers, it is critical that the service providers be subject to a uniform fiduciary standard of conduct that is at least as strong as exists under the Investment Advisers Act [of 1940], and equivalent regulatory requirements, regardless of the label attached to the service providers,” she said.
The FCIC, which will issue a report at the end of the year, held hearings Wednesday and today.
At yesterday's hearing, Lloyd Blankfein, chairman and chief executive of The
Goldman Sachs Group Inc., also supported extending the fiduciary standard to brokers who provide investment advice.
“We do support the extension of a fiduciary standard to broker-dealer registered representatives who provide advice to retail investors,” Mr. Blankfein testified.
“The fiduciary standard puts the interest of the client first,” he said. He added that investors may not understand that advisers may be regulated under different rules and regulations, he said.
Mr. Blankfein's testimony appeared to differ somewhat from what the Securities Industry and Financial Markets Association has called for regarding standardization of broker and adviser regulations. SIFMA has recommended that the SEC be given the authority to write new regulations defining a single fiduciary standard for all brokers and advisers who provide investment advice.
A SIFMA representative would not comment on Mr. Blankfein's testimony, and calls to the
Goldman Sachs press office were not returned.
In her testimony today, Ms. Schapiro again urged that the SEC be allowed to keep transaction and registration fees to fund its operations. That would allow the agency to be more independent of the congressional appropriations process and give it a more stable funding source, she said. In 2010, when the SEC is slated to receive $1.1 billion in appropriations, the agency will collect about $1.5 billion in fees.
Ms. Schapiro also cautioned that while consolidated supervision of too-big-to-fail institutions is needed, policymakers should be aware of the limits of such oversight. “This is particularly the case for institutions with many subsidiaries engaging in different, often unregulated, businesses in multiple countries,” she said.
Regulators should have the option of unwinding large institutions over time, she suggested. If structured properly, “such a regime could force market participants to realize the full costs of their decisions and help reduce the `too big to fail' dilemma,” she said.
Ms. Schapiro also called for regulating the $450 trillion over-the-counter derivative market. OTC derivatives can be leveraged significantly, resulting in concentrated risk and opaque interdependence among parties throughout the world, she said.
