May 7, 2008
File Number S7-06-08
The Securities and Exchange Commission (the Commission) has proposed significant amendments to Regulation S-P. Based on my experience and conversations with many others who own or are senior staff members of small firms, I believe these amendments pose significant hardships to small broker dealers and investment advisors.
The amendments, as written, would require many small firms to hire additional staff to handle the requirements. Many small firms (both broker dealer and investment advisor) operate with minimal staff, and that staff is already overburdened with having to act in many capacities. In a large percentage of small firms, one individual acts as the CEO, CCO, Chief AML Compliance Officer, as well as producing income for the firm. The requirements detailed in these amendments will require staff with specific expertise in Information Technology, which will be difficult to acquire and very costly for small firms. (I would point out that I am referring to the FINRA definition of a Small Firm, which is one with 150 registered persons or less). For most of these small firms, they either introduce all of their accounts and execute through a Clearing Firm relationship, or they have a very limited business (such as offering Direct Participation Programs), which does not requite the depth of information protection that the amendments would require. Obviously, Clearing Firms should have such systems in place to protect the identify of the retail customers who are introduced to them, but simpler and less costly safeguards would be more appropriate for these limited firms. Simple off-the shelf firewall and internet protection programs, as well as a system of password protection and appropriate safeguards (such as keeping all information in secure locations) are solutions which can be afforded and should be sufficient for these firms.
In addition, the amendments seem to lend themselves to all third party providers to broker dealers and investment advisors who may come into contact with customer information. Although, as stated above, certain third party providers (such as clearing firms) should be subject to the requirements, extending them to all third party providers would create a regulatory nightmare to enforce.
I would request the Commission reconsider these proposals to provide certain exemptions for small broker dealer and investment advisor firms. I would further suggest a task force be created which could work together to help develop appropriate regulations that would both protect the public investors and lessen the burden on small firms prior to making such regulations effective.
Carolyn R. May
Chief Compliance Officer
Simmons First Investment Group, Inc.