FINRA As The SRO For RIAs, Not So Fast
The battle lines are being drawn over Congressman Bachus' bill which would authorize one or more self-regulatory organizations for investments advisers. Many have believed that FINRA would be the obvious choice to take on this new role. Not Congresswoman Maxine Waters, the second-highest ranking Democrat on the Financial Services Committee; she favors the SEC keeping oversight over investment advisers. Her stated preference is to properly fund the SEC so that it can effectuate proper oversight of investments advisers.
Congresswoman Waters thinks that the SEC charging a reasonable user fee would be the most cost effective approach. This approach was also endorsed through the cost analysis of Boston Consulting Group who concluded that funding a new SRO or having FINRA serve in that capacity would be significantly more expensive than properly funding the SEC. Conversely, FINRA has circulated its own cost analysis, which attacks the Boston Consulting Group study arguing that it underestimated FINRA's ability to leverage existing staff, district offices and technology. In other words, the ramp-up costs for FINRA to be the SRO are not as great as that being claimed.
As the debate heats up, cost will likely be a driving factor to the decision regarding who will serve as the SRO for investment advisers. Considering the institutional knowledge that the SEC has over investment advisers, it seems to me that the most likely and cost effective approach will be a better funded SEC serving as the SRO. The one thing that has remained clear throughout the debate, however, is that investment advisers will have an SRO at some point. That will surely be a reality.