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Regulation and Compliance > Federal Regulation > SEC

House Committee May Unveil SRO Bill after September 13 Hearing

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Following is a story based off of a news article written by Melanie Waddell, Washington Bureau Chief for, a sister publication to National Underwriter Life & Health.

Washington insiders are betting that the House Financial Services Committee will introduce legislation calling for a self-regulatory organization (SRO) for advisors soon after the committee’s subcommittee on capital markets holds a Sept. 13 hearing on the issue.

The issue is a priority for the National Association of Insurance and Financial Advisors. Approximately 27% of NAIFA members are investment adviser representatives, according to LIMRA International. Of these, nearly all are dually-registered as registered representatives of broker-dealers, and thus, already subject to regulatory oversight by the Financial Industry Regulatory Authority, the LIMRA survey showed.

Only 1% of NAIFA members are registered investment advisers not currently under FINRA’s regulatory jurisdiction.

NAIFA’s board voted in July to recommend that FINRA serve as the self-regulatory organization to conduct examinations of Securities and Exchange Commission-registered investment advisers.

“It’s very likely we can expect SRO legislation to be introduced shortly after [the hearing] on the House side,” says Duane Thompson, senior policy analyst for fi360.

“If an SRO bill is introduced in connection with the hearing,” Thompson says, “the first question is whether it will be limited to broker-dealers/advisors, or include independent advisors as well.” The second, more important question, he continues, “is not whether it will be passed by the House, but whether the Senate will take it up this year.”

The Sept. 13 hearing will also examine the regulation of investment advisors and broker-dealers, while the full committee plans to hold a hearing on Sept. 15 on the need to reform the Securities and Exchange Commission (SEC).

The capital markets subcommittee, chaired by Rep. Scott Garrett, R-N.J., will examine the studies mandated by Dodd-Frank on the effectiveness of standards of care applicable to broker-dealers and investment advisors. The subcommittee will also explore the need for enhanced examination and enforcement resources for advisors (i.e. the need for a self-regulatory organization (SRO) for advisors).

Garrett has also introduced the SEC Regulatory Accountability Act (H.R. 2308), which would require the Securities and Exchange Commission to perform enhanced cost/benefit analyses on its rules.

The full committee’s chairman, Rep. Spencer Bachus, R-Ala., is also pushing legislation called the SEC Modernization Act, which would significantly alter the SEC’s structure. The full committee postponed a hearing it was to hold in early August regarding the SEC called “Fixing the Watchdog.” That hearing has now been rescheduled to Sept. 15, and will focus on the structure and operations of the SEC.

It remains to be seen if lawmakers will delve into the fiduciary duty rule being crafted by the SEC at the hearings. But Bachus told SEC Chairman Mary Schapiro in an early August letter that the agency should hold off on writing a rule to put brokers under a fiduciary mandate, as he supports the views aired by the SEC’s two Republican commissioners, Troy Paredes and former commissioner Kathleen Casey, that the commission has failed to “demonstrate that investors are being harmed by the current” fiduciary standard and that “harmonization” of advisor and broker rules would “enhance” investor protection.

The SEC should not be pressing ahead on the fiduciary issue, Bachus said, because it has yet to provide Congress with “empirical data and economic analysis to justify” a harmonization of fiduciary rules. Any action taken on these two fronts, Bachus said, “is premature” until the SEC answers these questions.

For its part, NAIFA officials cited an SEC study earlier this year the agency was directed to conduct through a provision of the Dodd-Frank financial services reform law. The study offered three options: authorize one or more SROs to examine advisers, impose fees on advisers to fund SEC exams, or authorize FINRA to examine dually registered advisers.

NAIFA president Terry Headley said that the trade group believes the most efficient, cost-effective answer is to authorize FINRA to conduct all RIA exams.

FINRA is already subject to SEC oversight, and it would be easier for FINRA to expand its current, substantial examination capabilities to cover RIAs than it would be to establish new SROs or significantly increase SEC exam programs.

“NAIFA supports reasonable examinations to ensure that financial professionals are complying with the law. Statistics have made it very clear that investment adviser examinations are not occurring with sufficient frequency,” Headley said.

“Because NAIFA members are already subject to comprehensive broker-dealer regulations, engaging FINRA to examine SEC-registered investment advisers will be the most efficient option for dually-registered NAIFA Members” Headley added.

Editor’s Note: If you have read this story by way of any media aggregation service, please note that this content was originally developed by our sister publication, AdvisorOne, which broke this story.



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