U.S. regulators warned broker-dealer firms about creating incentives that may lead their brokers to engage in questionable conduct such as recommending unsuitable investment products, the Securities and Exchange Commission said on Monday.
Certain forms of potential compensation may carry with them enhanced risks to customers, SEC Chairman Mary Schapiro said in an open letter to broker-dealer chief executives.
Schapiro said some types of compensation practices may lead brokers to believe that they must sell securities at a sufficiently high level to justify special pay arrangements that they have been given.
Citing news reports that suggested some firms are offering enhanced commission for sales of investment products, Schapiro said she wanted to remind broker-dealer firms of their duty to oversee their employees' sales practices.
She encouraged broker-dealer firm CEOs to be particularly vigilant in ensuring that investor interests are carefully considered in the sale of any security or other investment product.
Schapiro also encouraged firms to make sure that their compliance infrastructure was robust.
The SEC letter comes amid a push to clamp down on runaway executive compensation and ensure that pay packages don't lead employees to take on excessive risk.
(Reporting by Rachelle Younglai, editing by Maureen Bavdek and Matthew Lewis)