FINRA Tells Congress It Is Ready to Act as SRO for Investment Advisors

Speaking before a House Financial Services Committee, Financial Industry Regulatory Authority Chief Executive Richard Ketchup said that the self-regulatory organization is ready to set up a new entity to oversee investment advisers and make sure they are in compliance with federal securities laws. Ketchum also said the SRO would hire experienced staff to do the job and that regulatory oversight to tailored to investment advisers would be put into place.

Currently, the Securities and Exchange Commission is the watchdog for investment advisers. Staffing issues, however, prevent the commission from doing a thorough and frequent job-checks are about once every 11 years. Last year, the SEC was only able to examine 9% of all registered investment advisers.

Yet there are many in the financial industry that have expressed a preference for this status quo, or, if change has to happen, they would like state regulators to do the job. Some have expressed worry that FINRA would uphold investment advisers to rules more that applicable to broke-dealers. Others are not sure that the SRO is up to the task. Many are still not happy with FINRA’s performance as a financial industry watchdog prior to financial crisis. (It is important to note that FINRA has taken some responsibility for not discovering the Bernard Madoff Ponzi scam earlier.)

Right now, the SEC and Congress are assessing new regulatory policies for investment advisers and broker-dealers. The commission has put out a study regarding:

• Setting up user fees that would pay for the SEC’s adviser exam program • Handing over oversight of persons that are registered as both investment adviser and broker to FINRA • Establishing a law that would allow for an SRO for investment advisers
A bill has been drafted calling for a new SRO for advisers, but it doesn’t specify whether that self-regulatory group would be FINRA or the SEC. The sponsor of the bill, called the Investment Adviser Oversight Act of 2011, is House Financial Services Committee Chairman Spencer Bachus, R-Ala. Bachus.

Meantime, the Investment Adviser Association has said that it doesn’t want an SRO for investment advisers. Its executive director, David Tittsworth, has said that an SRO would add expensive bureaucracy and create a burden for advisory firms. Tittsworth believes that SEC is the best organization to do the job and that imposing user fees is a less expensive alternative.

FINRA currently examines about 4,500 broker-dealers. If it were to oversee advisers, that would be an additional over 11,000 firms. The Securities Industry and Financial Markets Association, the Financial Services Institute Inc., the Association for Advanced Life Underwriting, the Consumer Federation of America, and the National Association of Insurance are among those that support appointing FINRA as the investment adviser SRO.

Our stockbroker fraud law firm has helped thousands of victims of broker fraud and investment adviser fraud recoup their losses.

Financial Services Committee Debates Changes to Advisor, Broker Regulations, Financial Planning, September 13, 2011
FINRA makes pitch to oversee investment advisers, Reuters, September 13, 2011
Finra oversight of advisers gaining ‘mo, Investment News, September 13, 2011

More Blog Posts:
FINRA Will Customize Oversight to Investment Adviser Industry if Chosen as Its SRO, Stockbroker Fraud Blog, April 8, 2011
Financial Services Institute Wants FINRA to Serve as SRO for RIAs, Stockbroker Fraud Blog, January 3, 2011
Former Texas Securities Regulator Says Self-Regulation of Securities Industry Does Not Work, Stockbroker Fraud Blog, July 6, 2011