Securities Firms: Assessing the Need to Regulate Additional Financial Activities

GGD-92-70 Published: Apr 21, 1992. Publicly Released: Apr 21, 1992.
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GAO reviewed: (1) the organization and regulatory structure of large U.S. securities firms; (2) whether regulatory gaps exist that might affect U.S. investors and the financial system; and (3) the regulation of those firms compared to different regulatory approaches for bank holding companies and foreign securities firms.

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Recommendations for Executive Action

Agency Affected Recommendation Status
United States Securities and Exchange Commission The Chairman, SEC, should use the Market Reform Act provisions to gather and study data both to accommodate its current regulatory approach and to determine whether the overall risks posed by the unregulated financial activities of broker-dealer holding companies and affiliates warrant additional regulation.
Closed – Implemented
SEC testified in June 1994 that it can appropriately oversee the activities of unregulated broker-dealer affiliates under its existing regulatory authority and has taken action to do so. A GAO report (GAO/GGD-94-133) recommends that some agency be given regulatory authority over these affiliates.
United States Securities and Exchange Commission SEC should report its results as soon as possible and, if it determines that additional regulation is warranted, identify any needed legislative or regulatory changes.
Closed – Implemented
Although a 2-year study of the results of its risk assessment program has yet to be released, SEC, in cooperation with CFTC, has already worked with six major broker-dealers to develop voluntary regulatory oversight for their derivatives subsidiaries. These dealers, called the Derivatives Policy Group (DPG), constitute about 85 percent of the volume of over-the-counter derivatives activities among all securities firms. In March 1995, SEC and CFTC reached agreement with DPG for the firms to abide by stringent standards for internal controls and to provide additional disclosure to the regulators about the derivatives activities of their unregulated affiliates. The voluntary disclosures will include information about individual counterparty concentrations and earnings. These measures should improve both the management of the firms' derivatives activities and the oversight of the unregulated affiliates.

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