Bill May Mean New Self-regulatory Agency for Investment Advisers

September 12, 2011Articles Westlaw News & Insight Securities Blog

Oversight of investment advisers is coming to a head once again. On September 13, a Congressional financial services subcommittee will conduct hearings on oversight following the Securities and Exchange Commission's report that suggested a self-regulatory organization as an option for correcting the agency's failure to inspect investment advisers quicker than it has in the past. The call for this option, either a new self-regulatory entity or the Financial Industry Regulatory Authority, is a reaction to the SEC's inability to detect the Madoff Ponzi scheme.

The SEC has acknowledged its oversight deficiencies and that it lacks the resources to conduct examinations on a more robust basis. According to the SEC, it only examines 9 percent of investment advisers on an annual basis due to its lacks of resources. The current federal budgetary issues certainly suggest that Congress will not increase funding for the SEC to be the entity that will oversee investment advisers.

Leading up to these hearings, Congressman Spencer Bachus (R-AL), Chairman of the House Financial Services Committee, released proposed legislation that fixes on this option and provides for the establishment of a self-regulatory organization for investment advisers. Congressman Bachus' proposed legislation will address the fiduciary duty for investment advisers and oversight. Although the proposed legislation does not identify the self-regulators, like broker-dealers, it calls for investment advisers to be members of the self-regulatory body. In addition, the bill provides for the possibility of establishing more than one regulatory entity. This entity or these entities would then report to the SEC.

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