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April 01, 2013 at 08:00 PM
Just as incoming Securities and Exchange Commission (SEC) Chairwoman Mary Jo White has pledged to lawmakers that she would carefully weigh the costs of a fiduciary rulemaking, Richard Ketchum, CEO of the Financial Industry Regulatory Authority (FINRA), is renewing his call for a self-regulatory organization to oversee advisors.
Mary Jo White, President Barack Obama’s pick to replace current SEC chair Elisse Walter, told members of the Senate Banking Committee during her confirmation hearing in mid-March that she would “commit” to reviewing the comments the agency receives on its fiduciary rule before releasing a proposal on the issue.
Sen. Mike Crapo, R-Idaho, ranking minority member on the committee, asked White for assurance that if she was confirmed as the new SEC chair that before writing a rule, she would first review the comments the agency receives on its March 1 request, which asks for public data regarding the “potential regulatory costs” to implement proposed changes to fiduciary standards for broker-dealers and investment advisors. White responded that she would “absolutely” do that, as “this is an important area.”
Indeed, in her testimony, White said that one of her “focus” areas while chairwoman will be regulating the conduct of broker-dealers and investment advisors when giving retail investment advice.
While White said that finishing rulemaking mandates under the Dodd-Frank and JOBS Act “in as timely and smart a way as possible” will be her top priority at the agency, she could not name her top three rulemaking priorities when asked by Sen. Jack Reed, D-R.I.
Stating that the Dodd-Frank and JOBS Act have both placed a “daunting” task on the agency, White told lawmakers that she intends “to personally take charge in assessing” which rules will be priorities.
Despite Ketchum’s comments to the contrary, FINRA’s efforts to oversee advisors are alive and well. In comments before the Consumer Federation of America in mid-March, Ketchum said that “a fiduciary standard, alone or coupled with other regulatory harmonization,” for broker-dealer and advisor rules “is not a guarantee against misconduct.” Compliance, he said, “must be regularly and vigorously examined and enforced to ensure the protection of investors.”
Ketchum then quoted the SEC’s staff study under Dodd-Frank, which said that “to fully protect the interests of retail investors, the Commission should couple the fiduciary duty with effective oversight.”
The SEC’s ability to examine advisors, Ketchum maintained, “remains inadequate. And, sadly, the SEC continues to find serious problems when it conducts exams.” For instance, he cited the SEC’s recent findings of “significant violations” by advisors of the agency’s custody rule. Said Ketchum: “If investors are to be protected, investment advisors need to be examined regularly and vigorously. It’s as simple as that, and it is not happening under our current system.”
As securities lawyer Patrick Burns said: “Clearly, FINRA is still looking to regulate investment advisors.” At this stage, Burns said, “FINRA is lobbying for the establishment of a common fiduciary standard for brokers and investment advisors. Mr. Ketchum’s remarks, though, go on to state that their efforts are more than just about ‘harmonizing’ standards of conduct. FINRA is seeking to standardize additional rules and regulations for investment advisors and brokers, perhaps as a precursor to harmonizing oversight as well.”
One of the other options SEC staff gave Congress to boost oversight of advisors was to allow the SEC to assess user fees for advisor exams. Rep. Maxine Waters, D-Calif., ranking member on the House Financial Services Committee, is apparently preparing to reintroduce her user fees bill.
