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Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

A Bill Is Pending That Backs An SRO for RIAs, Which May Be FINRA.

Posted in Compliance and Supervision, Dodd-Frank, Financial Industry Trends, Investment Adviser Regulation, SEC Compliance, SEC Organization, SEC Structure, Securities Legislation

Congressman Bachus (R-Ala.) introduced a bill that would shift the oversight of registered investment advisers from the SEC to a self-regulatory organization that would report to the SEC.  This development represents the crystallization of one of the fears emanating out of Dodd-Frank, which mandated that the SEC study how to tighten oversight over RIAs.

Advisers fear that an SRO will be more expensive than the SEC and would lack the experience to address the fiduciary duty standard that governs RIAs.  Conversely, FINRA has long lobbied for it to become the SRO for RIAs, noting its long-standing oversight of broker-dealers.  FINRA’s track-record with broker-dealers suggests that it is well-positioned to become the SRO for RIAs.  From the public’s perspective, something has to be done because, under the current system, RIAs are examined less than once every 11 years, a point on which Bachus has focused.  The SEC has at least tacitly endorsed the role of an SRO over RIAs because of the SEC’ budget limitations to do the job itself.

The timing of this bill does not endear it to short term success.  In an election year, many may not want to rock the boat to push this bill along.  In other words, the bill just may not have the political juice to become reality.  Nevertheless, at some point there will surely be an SRO for RIAs, either FINRA, a better funded SEC, or, less likely, a brand new agency.  Time will tell, but we are probably looking at another year of this debate before there is an SRO for RIAs.