Securities and Exchange Commission chairman Mary SchapiroChip Somodevilla
U.S. securities regulators issued a proposal on Wednesday to curb bonuses at brokerage and investment advisory firms over the objections of Republicans on the panel and even some doubts expressed by chairman Mary Schapiro.
The Securities and Exchange Commission voted 3-2 to issue for comment a plan for the wealth management industry that is substantially similar to one proposed by the Federal Deposit Insurance Corp. last month for banks.
The measures are aimed at reducing incentives for executives and other top employees to take excessive risks. They require more disclosure of pay schemes and in some cases deferral of bonus money to later years.
Some SEC members were concerned by how the agency's pay proposal would affect the largest brokerage firms and financial advisory companies, which would include units of large banks such as Morgan Stanley and Bank of America.
The plan would also likely hit some advisers of large hedge funds as well, although the SEC did not elaborate on which particular companies might be affected.
"Larger broker-dealers and investment advisers may find it more difficult to recruit and retain quality personnel," Republican commissioner Troy Paredes told the SEC meeting. "It is potentially compromising the competitiveness and capability of these financial institutions."
Nevertheless, the broader U.S. plan to limit financial services pay is markedly softer than the European Union, which in December set guidelines that top bankers be limited to receiving 20 per cent of their annual bonuses up front in cash, with some exceptions.
In other measures, the SEC on Wednesday proposed reducing money market fund reliance on credit ratings and extended the comment period on a plan to restrict the voting power of large financial companies in derivatives clearinghouses.
One part of the SEC's proposal would target broker-dealers and investment advisers with proprietary assets over $1-billion (U.S.). Any firm that meets that threshold would need to make disclosures to regulators about their pay structures.
Those firms would also generally be banned from creating pay schemes that may lead executives, directors or principal shareholders to take inappropriate risks or take actions that result in a material loss.
Those provisions are expected to involve around 132 brokerage companies and 70 investment advisory firms. But the SEC did not provide details on which individuals at the firms may be affected.
Danny Sarch, a brokerage industry recruiter based in White Plains, N.Y., said the SEC's proposal is misdirected, partly because brokers lost a lot of money during the financial crisis, showing their interests were tied to shareholders'.
"Retail brokers were not responsible for the financial meltdown," Mr. Sarch said.
Another piece of the rule, meanwhile, targets executive officers and the heads of major business lines who work at financial firms with $50-billion in proprietary assets. That part of the rule would require these firms to defer at least half of executives' bonus pay over a three-year period.
SEC staff and commissioners said they were keen to hear from the public about whether the proposed compensation structure was properly tailored to different business models, particularly investment advisers.
Ms. Schapiro said she was hoping in particular to receive comments about private fund advisers, "given how they often structure their compensation."
"This is an area where we want to be very attuned to unintended consequences," she said.
In the area of over-the-counter derivatives, the SEC proposed new governance standards for clearinghouses and also reopened the public comment period on a contentious rule that would place limits on the voting power that financial firms can wield in derivatives clearinghouses and trading facilities.
The plan on voting caps has been widely opposed by big Wall Street banks, although the Justice Department's Antitrust Division has said it does not go far enough.
The governance and operations proposal addresses the financial resources that clearinghouses must have to withstand defaults by members. It also includes provisions to prevent clearinghouses from denying memberships to smaller firms.