More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
Sheila Bair, chairman of the Federal Deposit Insurance Corp. (FDIC) and Mary Schapiro, chairman of the Securities and Exchange Commission (SEC), conceded to federal crisis investigators January 14 that regulators did indeed drop the ball in preventing the financial meltdown.
During the second round of hearings held by the Financial Crisis Inquiry Commission (FCIC) in Washington January 14, Denise Voigt Crawford, Texas Securities Commissioner and president of the North American Securities Administrators Association (NASAA), told the federal investigative panel in her testimony that three actions should occur to prevent further potential crisis.
First, restore provisions of Glass-Steagall, the 1933 law that created a wall between commercial and investment banking. In fact, a bipartisan bill recently introduced by Senators Maria Cantwell (D-Washington), John McCain (R-Arizona), Russ Feingold (D-Wisconsin), and others would do just that by prohibiting commercial banks from affiliating in any manner with investment banks. "By separating the commercial banks from the investment banks, the Cantwell-McCain bill would end speculation with depositors' money and return stability and confidence to Main Street," Crawford said.
Second, Congress should reinstate state regulatory oversight of Rule 506 offerings by repealing Section 18(b)(4)(D) of the Securities Act of 1933, Crawford said. Section 928 of Senator Christopher Dodd's financial services reform bill, the Restoring American Financial Stability Act of 2009, would reinstate the authority of state regulators over Rule 506 offerings. "Most hedge funds are offered pursuant to Rule 506, so state securities regulators are prevented from examining the offering documents of these investments, which represents an enormous dollar volume," Crawford said. "Although Congress preserved the states' authority to take enforcement actions for fraud in the offer and sale of all 'covered' securities, including Rule 506 offerings, this power is no substitute for a state's ability to scrutinize offerings for signs of potential abuse and to ensure that disclosure is adequate beforeharm is done to investors."
Third, Crawford suggested increasing state regulation of investment advisors. "As evidenced by the Inspector General's report on the Madoff affair and the testimony of SEC Chairman Schapiro and other SEC staff before Congress, the bulk of federally covered investment advisers are examined infrequently," she said. NASAA members, she continued, "are fully prepared and equipped to fill this gap by accepting responsibility for the oversight of investment advisers with up to $100 million in assets under management."