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March 01, 2009 at 02:00 AM
The regulatory stew in Washington is beginning to come together, with Mary Schapiro confirmed to chair the SEC and with the Commission’s enforcement chief, Linda Chatman Thomsen, having resigned in early February under pressure from Congress, specifically for the SEC’s failure to detect and prevent the Bernie Madoff Ponzi scheme. In the background, however, another regulatory ripple has been launched that may become a tsunami: FINRA is quietly conducting a sweep of broker/dealers that could be the first steps to having the SRO take over regulation of registered investment advisors from the SEC–something the former NASD has long desired.
In mid January, FINRA’s Enforcement Department sent out a letter to an unspecified number of broker/dealers asking if each B/D had referred any clients to RIAs for the express purpose of receiving investment advisory services. In particular, FINRA is seeking information on whether any of those broker/dealers referred business to Mr. Madoff and, if so, what the procedure was that the B/Ds filed. FINRA wants to see documentation for such activities that took place during the review period from January 1, 2006, through December 31, 2008.
This, says securities attorney Brian Rubin of the Washington, DC-based law firm Sutherland, could be the first step in a FINRA lobbying campaign to assume the SEC’s oversight of RIAs. “It’s Madoff-related, yes,” admittted Rubin in an interview January 29 during the annual gathering of the Financial Services Institute (FSI), but “part is broader than that,” suggesting that once FINRA gathers the information on business referrals to RIAs, they may “use it as ammunition” in its attempt to gain oversight of RIAs.
The B/Ds subject to the sweep were to have filed their responses by February 6, but Rubin suggested many would get extensions.
