This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.  
  • Delicious




SEC Criticises Online Brokers For Not Protecting Client Information

Mike Godfrey, Tax-news.com, New York

29 January 2001

A federal study, prompted by rising customer complaints, has accused online brokers of failing to protect their clients' privacy.

Fresh from the conflict with traditional mutual fund brokers over disclosure of fees, the American Securities and Exchange Commission has now set its sights on online brokerages, accusing them of failing to protect investors' personal information, and not ensuring that orders are executed at the best price.

The federal study, prompted by the explosion of online trading and the concurrent rise in customer complaints, showed that in a large number of cases, confidential information such as account numbers and passwords is sent by e-mail without any security measures in place.

Customers also complained of difficulty accessing their accounts, and reported that there were many instances in which their orders failed to be processed, or were delayed. The Commission also criticised the quality of the information provided by some sites, and found that many brokerages were not meeting their best execution obligations. Lori Richards, head of the SEC's Office of Compliance Inspections and Examinations explained that the problems were in part due to the relative newness of the industry, adding: 'I think with anything that's new it will take a bit of time for what we think of as best practices to become common practices.'

It is not the first time, however, that the SEC has had its beady eye on the online brokerages. In May of last year, SEC chairman Arthur Levitt challenged firms to 'meaningfully communicate with your customers', concerned that the impression that the information being conveyed to clients of online brokers was misleading, and that the capabilities to deal with the then rising number of new online investors were not adequate.

In a rising market, brokers may have felt free to disregard the advice of the SEC, confident that fledgling investors would flock to the new medium regardless. However, in a bearish climate in which unhappy investors are continuing to vote with their feet, online brokers would be sensible to take notice of the warning signs.

.

 

 






Write a comment