Hearing Set on SRO Proposal

The House Financial Services Committee will hold a hearing on either June 6 or 7 on proposed legislation that would establish a self-regulatory organization (SRO) for investment advisors.

The legislation is being pushed by Rep. Spencer Bachus, R-Ala., chairman of the committee. According to Investment News, a markup of the bill by the committee is likely by the end of June.

He and Rep. Carolyn McCarthy, D-N.Y., are sponsoring the bill.

The bill is likely to be reported out by the Financial Services Committee, but unlikely to win support in the Senate even though it may be approved by the full House as well.

In announcing that he was introducing the bill, Bachus said that the average SEC-registered investment advisor can expect to be examined less than once every 11 years.

“That lack of oversight, particularly in the aftermath of the Madoff scandal, is unacceptable,” Bachus said.

“Bad actors will naturally flow to the place where they are least likely to be examined. Therefore, it is essential that we augment and supplement the SEC’s oversight to dramatically increase the examination rate for investment advisers with retail customers.”

The National Association of Insurance and Financial Advisors (NAIFA) is a strong supporter of the bill, which presumes that the Financial Industry Regulatory Authority (FINRA) would be a SRO, and conduct the examinations in lieu of the current SEC oversight.

NAIFA president Robert Miller argues that the SEC examines nine percent of investment advisers each year. In comparison, he said in an April statement, FINRA examines 55 percent of broker-dealers every year, and all registered representatives are subject to annual compliance reviews by their broker-dealers.