Pursuant to a congressional request, GAO reviewed the Securities and Exchange Commission's (SEC) and several self-regulatory organizations' (SRO) oversight of unscrupulous brokers, focusing on: (1) the extent of unscrupulous broker activity in the securities industry; (2) regulatory and industry efforts to discipline unscrupulous brokers; and (3) the industry's capability to identify unscrupulous brokers through its Central Registration Depository (CRD) database.
Recommendations for Executive Action
|United States Securities and Exchange Commission||1. To help maintain investor confidence in the securities markets, SEC should implement the recommendations of the SEC staff study to strengthen existing disciplinary standards, including the imposition of a permanent bar with no opportunity for reentry, when warranted.|
|United States Securities and Exchange Commission||2. To help maintain investor confidence in the securities markets, SEC should monitor the CRD redesign to ensure that it provides the capability to allow regulators to more easily identify and monitor brokers with disciplinary histories.|
|United States Securities and Exchange Commission||3. To help maintain investor confidence in the securities markets, SEC should direct SRO to enhance and increase the reporting of information to CRD. Specifically, SEC should direct that: (1) SRO disciplinary actions be reported directly to CRD; and (2) information on customer complaints and their dispositions be collected, monitored, and reported to CRD. SEC should also work with NASD to develop procedures to balance regulatory surveillance and public disclosure interests pertaining to disclosure of customer complaint and complaint disposition information to regulators and investors.|
|United States Securities and Exchange Commission||4. To help maintain investor confidence in the securities markets, SEC should work with NASD, the North American Securities Administrators Association, and the Department of the Treasury to increase disclosure of CRD data pertinent to the detection of unscrupulous brokers that migrate from the securities industry to other segments of the financial services industry.|
|Department of the Treasury||5. The Secretary of the Treasury should work with SEC and other financial regulators to increase disclosure of CRD information available to regulators and employers among the financial services industry and related industries so that regulators may be aware of and give consideration to a broker's disciplinary history in allocating examination resources and so that employers can use the information in making a hiring decision.|
|Department of the Treasury||6. The Secretary of the Treasury should work with SEC and other financial regulators to determine whether legislation or additional reciprocal agreements between SEC and other financial regulators are necessary to prevent the migration of unscrupulous brokers to other financial services industries.|