FINRA is elbowing its way into an oversight role for investment advisers. House Financial Services Committee Chairman Spencer Bachus has introduced the Investment Adviser Oversight Act of 2011. The argument is that the SEC is too overburdened to effectively oversee investment advisors.
I find it strange that Congress wants to make the shift. If the SEC can’t handle the job, it’s because the Congress will not appropriate the money the SEC needs. If there are not enough inspections, its because there are not enough people. Effectively, it would shifting the cost of oversight from the taxpayers to the investment advisers.
The hearing on the bill can be summarized with three words: “Madoff, Madoff, Madoff.” (The one exception at the House hearing was Congressman Carson who pointed out that it was Congress who plunked down lots of new obligations on the SEC without providing funding.)
The current draft of the bill would exclude the following from oversight by a “registered national investment adviser association”:
- Investment companies (mutual fund advisors)
- Non-U.S. persons
- Clients that in aggregate own at least $25 million in investments
- Various religious, education or charitable entities
- Stock pension plans and collective trusts
- Private equity funds
- Venture capital funds
Retail investment advisers would be governed by the “registered national investment adviser association” while hedge funds and private equity funds would stay with the SEC. Personally, I think the SEC has its weaknesses, but I dislike FINRA’s strict rule based approach to regulation.
- Text of the Investment Adviser Oversight Act of 2011 (.pdf 28 pages) September 7, 2011 draft
- Video File of Hearing entitled “Ensuring Appropriate Regulatory Oversight of Broker-Dealers and Legislative Proposals to Improve Investment Adviser Oversight”
- Finra oversight of advisers gaining ‘mo by Liz Skinner in Investment News
- House Committee to Hold Hearing on Oversight of Investment Advisers by Steve Quinlivan in Dodd-Frank .com
- Executive Summary SRO Discussion Draft “Investment Adviser Oversight Act of 2011 (.pdf 5 pages) by fi360.com
- Legislation calling for an SRO for advisers appears before Tuesday’s congressional hearing in IA Watch
- Is FINRA Set to Be the Big New Regulator on the Block? by Catherine Dunn in Law.com
- FINRA’s Ketchum Discusses House Draft Authorizing SRO for Investment Advisers in Jim Hamilton’s World of Securities Regulation