Survey of Investor Protection and the Regulation of Financial Intermediaries

GAO surveyed investment opportunities, investor protection, and the regulation of financial intermediaries. It also analyzed the functions of federally created financial institutions.

Financial intermediaries encompass depository institutions, commercial bank trust departments, brokerage houses, and investment companies. They act as mediators between investors and their investment positions. GAO noted that recently the distinctions between these intermediaries have become blurred. GAO found that differences in regulation exist concerning: (1) the degree to which regulators manage intermediaries' risk exposure; (2) the policy of direct supervision of intermediaries versus reliance on self-regulatory organizations; (3) the amount and types of information required to be disclosed to the investing public; and (4) the extent to which regulators impose restrictions on or establish criteria for advertisement of intermediary services. Further, GAO found that intermediary regulators have adopted different approaches to protect investors from loss. These include types of insurance and maintenance of fiduciary standards. GAO found significant variances between federal and state deposit insurance programs. Since federal deposit insurance programs are larger, the impact of financial failure can be spread among many institutions, and there is a greater availability of funds to provide member institutions with temporary financial assistance.