Compliance September 8, 2011

Rep. Bachus Circulating New SRO Draft

A draft bill from House Financial Services Chairman Spencer Bachus (R-Alabama) calls for SEC-registered advisers to be transitioned from SEC regulation to a self-regulatory organization (SRO).

Reported by

Nicole Bliman

The proposal, being referred to as the Investment Adviser Oversight Act of 2011, continues a debate that has been stirring the adviser community since January (see “SEC Publishes Report about RIA Oversight”and “SEC Commissioner Says SRO Report is Inadequate”). Investment advisers have argued that the model of industry self-regulation is too conflicted, while the Financial Industry Regulatory Authority (FINRA) has been vocal about its qualifications to take the reins.

The SEC has also been under scrutiny for its lack of resources to regulate advisers vigorously enough (see “Time is Ticking for SEC-to-State Transition”).

The Financial Services Institute (FSI) has already released a statement reacting to the Senator’s proposal.

“Due to an enormous gap in the supervision of retail investment advisers, hard-working Americans are forced to become financial services regulatory experts, simply in order to feel confident that the person they turn to for financial advice has their best interests in mind,” said FSI President and CEO Dale E. Brown. “The current regulatory disparity not only puts investors at great risk, it undermines investor confidence, which in turn jeopardizes not only the investment goals of millions of Americans but also the economy at large. Since the start of the legislative process that resulted in Dodd-Frank, FSI has urged Congress to adopt legislation that would allow the SEC to close the regulatory gap, by approving an SRO for retail investment advisers. If adopted this legislation would accomplish that goal and bring about significant improvements in investor protection and a balanced playing field for all financial advisers.”

According to MarketWatch, copies of the draft legislation were released Wednesday by Rep. Scott Garrett (R-New Jersey), chairman of the Financial Services Capital Markets Subcommittee, to trade groups in Washington that will be in attendance at a hearing scheduled for September 13 (see “Hearing on Regulation of B/Ds and RIAs Set”).