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March 01, 2011 at 07:00 PM
The Financial Services Institute’s OneVoice 2011 conference kicked off in Phoenix Monday night with a question-and-answer session with Richard G. Ketchum, chairman and CEO of the Financial Industry Regulatory Authority (FINRA). Moderated by Dale Brown, FSI’s president and CEO, the conversation touched on reaction to two recently released SEC studies.
As for the conference itself, Brown reported Tuesday morning that FSI was pleased with the record number of attendees at OneVoice–590. The conference is designed for top-level executives and other home office staff members at independent broker-dealers.
One of the SEC studies involved the standard of care required of financial professionals; the other involved the appropriate level of regulatory oversight. Beginning with the appropriate level of oversight, Brown asked Ketchum about what surprised him most about the study’s results.
“Nothing really surprised me,” Ketchum (left) said. “We seem to be going through a rather arduous process, but I must point out that we are still at the beginning of this process. The SEC acknowledged very clearly that they do not have the resources to address what is needed in these areas and offered three solutions.”
Brown interrupted Ketchum to ask about the proposed solutions, which were:
- Authorizing the Commission to impose user fees on SEC-registered investment advisers to fund their examinations by the Office of Compliance Inspections and Examinations (OCIE);
- Authorizing one or more self-regulatory organizations (SRO) to examine, subject to SEC oversight, all SEC-registered investment advisers; or
- Authorizing FINRA to examine dual registrants for compliance with the Investment Advisers Act of 1940 (Advisers Act)
Brown noted that the organization has already endorsed FINRA as their choice for the second recommendation. He also noted that one proposal, to make FINRA the sole regulator of dually registered representatives, was a bad idea due the increased regulatory burden.
Ketchum responded by explaining the SEC’s intention in making the recommendation. Since FINRA understands the independent contractor business model, it would free up the SEC to use its resources to focus on the “other side of the ledger.” But he agreed that the creation of one or more SROs would be a better solution.
When asked about the politics and timeline involved in a possible solution to the oversight question, Ketchum said he didn’t see much happening before September or October 2012, and even that, he acknowledged, would be a major achievement.
“But Rep. Spencer Bachus [R-Ala., chairman of the House Financial Services Committee] believes the SRO recommendation is sound, and I believe it will result in a fair hearing on the subject.”
Brown informed Ketchum there were three points of view among audience members; those that like FSI’s endorsement of FINRA as the sole SRO; those that like the idea of the sole SRO concept, but do not want FINRA involved; and those that don’t like the SRO solution.
“I understand,” Ketchum said. “This is why we need a discrete board, and a discrete senior staff with loads of experience. We have to improve our oversight where the SEC lacks resources, but we have to do it in a way that is sensitive to the way in which you conduct business with clients.”
