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.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
Rep. Barney Frank, the straight-talking Massachusetts Democrat who serves as ranking member on the House Financial Services Committee, announced in late November that he won’t seek re-election and plans to retire from Congress at the end of 2012.
Frank will remain a tough and influential legislator throughout 2012 and has vowed to defend the Dodd-Frank financial reform act that bears his name. Recent comments that Frank has made, including those to Investment Advisor, signal that he will vote against House Financial Services Chairman Rep. Spencer Bachus’ legislation calling for a self-regulatory organization (SRO) for advisors. When Investment Advisor asked Frank after an early December speech what he thought about Bachus’ SRO bill, he replied: “I don’t like it.”
Like other industry trade groups that are fighting against Bachus’ bill, Frank said at a Capitol Hill press conference in late November that he’s “skeptical of self-regulatory agencies” and that he would “not want to detract at all from the responsibilities of public agencies.” Frank has been a staunch proponent of boosting funding for the Securities and Exchange Commission.
While Frank’s status as a ranking member on the financial services committee likely won’t prevent an SRO bill from being reported out of his committee, his objections to such legislation “can create a strong partisan bill” that reaches the House floor and “sends a signal” to the Senate about the problems associated with an SRO, says Marilyn Mohrman-Gillis, managing director of public policy for the CFP Board.
An SRO bill, which already looks to be a tough sell in the Senate, will likely not be introduced by Bachus until sometime this spring.
David Tittsworth, (left), executive director of the Investment Adviser Association in Washington, says that while he is “pleased that Mr. Frank shares our concern about the inefficiencies of saddling advisors with an SRO—likely the Financial Industry Regulatory Authority (FINRA) oversight—we believe it is incumbent upon all lawmakers to consider alternative means for providing the SEC with the resources it needs to remain the cop on the beat.” User fees must be considered, Tittsworth says, as they “would allow the SEC to retain its regulatory primacy without adding to American taxpayers’ burden.”
The SEC can’t move forward with an SRO until Congress enacts legislation telling it to do so. Bachus’ proposed bill would shift regulation and oversight of investment advisors to FINRA or another private regulator, except for certain advisors whose assets under management are concentrated in mutual funds, private funds or with large clients.
But Bachus’ SRO bill has supporters. Ken Bentsen, executive vice president of public policy and advocacy at the Securities Industry and Financial Markets Association (SIFMA), said at the Consumer Federation of America’s financial services conference in early December that SIFMA would like to see Bachus’ SRO bill move forward. While SIFMA supports an SRO for advisors, he said, “we haven’t come to the view that it ought to be FINRA,” even though “a lot of [SIFMA’s] dual registrants believe it should; not because they are ‘in love’ with FINRA, but because we have a ‘healthy relationship’ with FINRA.”
Lawranne Stewart, deputy chief counsel for Barney Frank’s office, who sat on the same panel with Bentsen to discuss the future of securities regulation, said that an SRO for advisors “will be a hot topic for a while.” Now that Dodd-Frank authorized the switching of advisors with assets under management of between $25 million and $100 million from federal to state registration by mid-2012, “the states have the chance to see what they can do with advisor exams,” Stewart said. “We’ll see what kind of impact that has. I think there is going to be a lot of evolution over the next few years, to see how this is going to work.”
In announcing his retirement, Frank acknowledged that the “very substantial changes” in congressional redistricting was a primary reason he decided not to seek re-election, adding that such redistricting changes would take him away from serving his current constituents and protecting financial reform—one of his top goals.
Frank told attendees at the CFA event that the “public is committed to the financial reform bill continuing.”