US securities brokers would be more closely scrutinised by auditors and be subject to stricter oversight of their handling of customers' assets under a plan proposed by federal regulators on Wednesday. The proposal by the Securities and Exchange Commission is meant to improve oversight of broker-dealers in the wake of Bernard Madoff's massive Ponzi scheme.
The SEC failed to catch Madoff's scheme despite multiple tips and agency examinations of his operations. Investors are still seeking to recover billions of dollars.
The SEC voted 5-0 to put the proposal out for public comment.
It is not one of the nearly 100 new rules required under the Dodd-Frank Wall Street overhaul law. However, it will help facilitate the Public Company Accounting Oversight Board's new powers under Dodd-Frank to oversee registered public accounting firms that audit broker-dealers.
The proposal is meant to serve as a companion piece to regulations the SEC adopted in late 2009 that tightened custody rules for investment advisers and subjected some of them to surprise audits.
Under the plan, the annual audits that brokers already face would be bolstered so auditors place a greater focus on custody activities. Brokers with custody of client funds would face examinations to make sure they are meeting customer protection and net capital rules.
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