SEC May Enlist FINRA for Oversight of Investment Advisers

June 6, 2011Articles Securities Law Blog

The current political and economic climates are at odds when it comes to the implementation of various mandates contemplated by the Dodd-Frank Act. In January, the Securities and Exchange Commission authored its report that Dodd-Frank required wherein the SEC confirmed what had long been suspected: the agency lacked the resources to perform sufficient oversight over investment advisers.

To address this shortfall, the SEC requested that Congress take action to fund more comprehensive oversight of investments advisers in one of three manners: (1) fund an examination program through user fees; (2) create a new self-regulatory organization to specifically address investment advisers; or (3) have the Financial Industry Regulatory Authority assume oversight of the investment adviser community.

FINRA has stepped forward to push for it to have this oversight function, claiming that it is a natural complement to FINRA's existing oversight infrastructure when it comes to broker-dealers.

During his recent remarks at FINRA's annual conference, Chairman Richard Ketchum stated that FINRA has the systems, in the form of technology and personnel, to support such additional oversight functions to address issues unique to investment advisers. At the same time, Chairman Ketchum acknowledged that Congress is no closer to deciding on making FINRA the new examiner for investment advisers. Although Ketchum believes that Congress will ultimately decide this issue, he recognized that the political climate for a final decision is somewhat stagnant due to other pressing concerns, such as the budget.

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