Feds happily punt to states on advisor oversight
Move would take 33% of RIAs off of SEC's plate
3 min read- Congress considers shifting oversight of smaller RIAs to state regulators.
- Proposal targets advisors with $100 million or less in AUM.
- FINRA pitches itself as a potential regulator amid SEC criticism.
After a morning of SEC-bashing, in which members of Congress took turns wondering how the SEC could have overlooked Bernie Madoff’s Ponzi scheme, one proposal seemed to find favor with the House panel: shifting regulation of more small investment advisers from the SEC to the states.
The North American Securities Administrators Association proposed that investment advisers with $100 million in assets under management or less could be regulated by the states. Currently, the states regulate advisers with assets under $25 million.
The proposal would mean about 4,200 investment advisers, just over a third of the total, would be under the jurisdiction of the states, said Denise Voigt Crawford, Texas Securities Commissioner, Securities Administrators Board, who testified on behalf of North American Securities Administrators Association. She spoke at a hearing of the House of Representative Financial Services Committee.
Gravel-voiced Barney Frank, the Democrat from Massachusetts who chairs the Committee, remembered attempts in past Congresses to shift more power to the federal government, away from the states, and pointedly asked Voigt Crawford if the states are an obstacle to federal regulators.
Johnson amendment a stalking horse for FINRA oversight of RIAs?
“We are not an obstacle. We’ve been filling the gap for a number of years,” she answered.
“You have been an improvement on the federal regulators,” Frank then agreed.
FINRA Chairman Richard Ketchum, making a pitch for FINRA to take on regulation of financial advisers, noted that the SEC will examine only 9% of the 11,000 financial advisers in 2009.
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In contrast, “there are nearly 5,000 broker-dealer firms registered with the SEC, and between the SEC and FINRA, approximately 55 percent of those firms are
examined on an annual basis,” he said.
The hearing was held in response to draft legislation released by the Committee. Along with many other provisions the draft includes a proposal to hire an outside company to study the SEC’s structure and that of its affiliated agencies.
Is FINRA oversight a fait accompli? It's starting to feel that way.
SEC not represented
While forward-looking reform was on the minds of some members of Congress, many were still caught up in dismay at the SEC’s failure. The SEC was not represented among the witnesses testifying today.
“The SEC has too many front-yard dogs and not enough junk-yard dogs,” said Congressman Emmanuel Cleaver of Missouri, before saying that he agreed with the idea that the states could do more.
Other members called the SEC “overlawyered,” and said it had a “stovepipe” culture and marveled at why those people who tried to alert the SEC to the Madoff scheme did not take their complaints to Congress.
“Why didn’t they call one of us? We would have kicked it right upstairs.” asked Rep. Paul E. Kanjorski, a Democrat from Pennsylvania.
None of the members of Congress seized the opportunity to grill Ketchum. FINRA had jurisdiction over Madoff until 2006 – and didn’t pick up on the Ponzi scheme, either.
Rep. Kanjorski invited companies that have had dealings with the SEC to share their experiences with him. Anyone want to take him up on his offer? I will forward comments to his office if you drop me a line at Elizabeth@RIABiz.com.
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