Brokers and other financial industry groups are fighting an attempt by the SEC and Finra to require the delivery of account statements to clients even when they request they be sent only to third parties.
Critics of the mandated delivery requirement say that sending statements to clients who are incapacitated or institutionalized could increase the risk of fraud by making the account information available to potential exploiters.
Current rules allow brokerage firms to send statements just to third parties if the customer has given written permission.
But Finra, under pressure from the SEC, wants to require duplicate delivery to customers as well.
The controversy stems from ongoing consolidation of legacy NASD and NYSE rules covering account statements.
The industry was successful in earlier beating back a requirement to produce monthly account statements.
SEC staff has concerns about sending account statements to third parties, according to Finra’s latest proposal, released in September (Regulatory Notice 14-35).
But commenters to the recent proposal are urging federal regulators to rethink the mandatory delivery requirement.
The North American Securities Administrators Association (Nasaa), the Financial Services Institute (FSI) and the Securities Industry and Financial Markets Association (Sifma) all warned about the potential risk to vulnerable investors.
Mandating delivery in all cases “could potentially result in an increased risk of customers’ privacy being violated, account compromises and/or identity theft,” Sifma wrote in a comment letter.
The Wall Street trade group said current rules have “served both the investing public and the industry well, and Finra has not established widespread complaints or problems in this area that would justify such a substantial, potentially risky, and costly expansion of account statement delivery obligations.”
FSI supported exceptions in cases where clients were institutionalized or worried about fraud. The Investor Rights Clinic at Pace Law School suggested an opt-out to the delivery requirement. Nasaa recommended that customers get a signature guarantee when they decline to receive statements, and that notices be sent reminding them that statements are going to third parties.
The National Academy of Elder Law Attorneys (NAELA) said Finra’s proposed change would do little to protect vulnerable investors because situations are unique.
While account statements of nursing home patients may “pile up at their old home where potential exploiters can get access to them,” NAELA wrote, in other cases the exploiters may actually be the ones authorized to receive statements.
The bigger issue is the reluctance of brokerage firms to identify assets an incapacitated person may have, said Wendy Shparago Cappelletto, supervising attorney in the office of the public guardian for Cook County, Ill., who was involved in Naela’s response to Finra.
Investment firms won’t disclose anything except under a court order, and even then the process is slow, she said in an interview.
“Time is of essence in these cases,” Shparago Cappelletto said. “It’s so easy to move assets around, and if you can’t stop [a fraud] you might never recover” the assets.