In an instant, retirement savings vanish by Bob Sullivan:
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Few consumers appreciate the fact that, unlike credit card and checking account transactions, there are no federal consumer regulations specifically protecting consumers in the event of brokerage account hacking
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Both credit card transactions and electronic account transfers, such as online banking payments, are governed by Federal Reserve regulations that strictly limit consumers’ losses from theft. Consumers who report credit card fraud are only liable for $50
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Despite the lack of legal compulsion, some investment firms have taken to offering broad consumer protections anyway. Both e-trade and Charles Schwab offer credit-card style guarantees. Money stolen from Charles Schwab’s Web site will be returned to consumers as long as the theft is reported in a timely way, said Schwab’s Greg Gable.
This risk is something the government should address. The risk is to the economy at large, as well as having extreme consequences for individual investors. We need to do as much as possible to encourage retirement savings. Not providing government backing (such as provided by FDIC…) is a mistake. The funding should be similar to that for FDIC where member banks are assessed fees to cover the costs of the program based on the risks seen in that institution.
FDIC has done a great job of creating an environment that gives individuals confidence in the system and encourages economic development. Securities Investor Protection Corporation is another possible model but for something so important to the economic security of the country (and individuals lives) direct government involvement makes sense to me.