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May 11, 2012 at 08:21 AM
Jason Zweig is causing controversy—again. The Wall Street Journal gadfly posted a column last week, suggesting the ongoing SRO debate would be solved not by the SEC, or FINRA, but with robots (seriously).
“Investment advisors are being examined infrequently, inconsistently and incompletely—largely because regulators are outnumbered and reliant on outmoded technology,” Zweig writes. “In a business world that routinely runs on ‘big data,’ it’s time to put computers on the case.”
To make his case, he notes that in fiscal 2011, the SEC examined just 8% of the 12,600 advisors under its jurisdiction. Roughly 5,000 advisors have never been audited by the SEC. State regulators, who are responsible for inspecting smaller investment advisors, look a bit nimbler. Two-thirds of the states say they examine advisors at least once every four years.
“FINRA inspects brokerage firms roughly every two years. Those more-frequent inspections, however, didn’t detect Allen Stanford or Bernard Madoff’s Ponzi schemes.”
At the heart of these gaps, he adds, are antiquated databases and other crude technology that one person who deals regularly with regulators calls “right out of the Raiders of the Lost Ark warehouse.”
“The Self-Regulatory Organization for Independent Investment Advisers, an organization in Oxford, Miss., established last year as a potential alternative to existing oversight agencies, says regulators need to embrace ‘data analytics.’ Computers should be parsing vast quantities of information in search of overall patterns and potentially risky exceptions.”
