SPA Conference: Kenneth Lench, SEC new products unit chief wants to build dialogue with firms

By Emma Trincal

New York, March 25 - Gathering information and knowledge about new products coming to market is one of the main goals for Kenneth Lench, chief of the structured and new products unit division at the Securities and Exchange Commission, as he builds up his new operation.

"We're staffing up the unit, including hiring outside industry experts," said Lench.

Lench was speaking at one of the best attended panels at the Structured Products Association's seventh annual conference, a special regulatory discussion that also included Bill Hayden, director, emerging regulatory issues at the Financial Industry Regulatory Authority.

The structured and new products unit is a new piece of the SEC's division of enforcement.

The panel gave Lench the opportunity to discuss his mandate.

Tips

Lench said that the industry as a whole could benefit from improved enforcement of securities laws.

"We want to identify potential problems before they become major problems," he said.

"There is a place for complaints, tips and referrals on our website. If you see something that seems improper about a structured product, you may not buy it but chances are that others will, so it would be helpful if people reported things to us," Lench said.

Image improvement

Lench explained that the image of the structured product business could be improved if some isolated cases of wrongdoing could be identified and dealt with.

"It may hurt the industry as a whole to have some of these bad apples out there as they may hurt the legitimacy of the rest of the business," Lench said.

Knowledge and cooperation

Talking about his plans, Lench said that his focus at the present time is to develop expertise and also to cooperate with other regulators.

"Right now, we're building up our knowledge of the products. We're expected to stay on top of what Wall Street and others are doing, to gather as much information and intelligence as we can," he said.

"We're reaching out to other regulators, including federal, state, civil and criminal regulators as well as foreign regulators."

Finra's message

Haynes spoke about Finra's recent regulatory notices issued on reverse convertible and principal-protected products.

"There are very consistent themes we're trying to express in each of these notices," he said.

"Firms should not be selling products they don't understand; and suitability rules continue to apply.

"There are brokers migrating from larger firms to regional firms bringing new ideas. We want to make sure that traditional suitability rules continue to be enforced for new products coming in the market," he said.

In particular, Hayden said that Finra wants to make sure products are not pushed arbitrarily and mechanically to clients.

"We don't want to see products sold indiscriminately to all classes of retail clients where it may be suitable to only some portions of the retail market," Hayden said.

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