Rep. French Hill, R-Ark., a member of the House Financial Services Committee, said Thursday that he plans “to explore” introducing a bill that would give the Financial Industry Regulatory Authority the authority to examine investment advisors.
When asked by an audience member after his remarks at FINRA’s annual conference in Washington on Thursday morning about the current exam rate of investment advisors by the Securities and Exchange Commission, Hill stated that the current 10% annual exam rate is “a low number,” and that he thinks FINRA “should have the responsibility” of examining advisors.
FINRA has “an excellent network of offices [and] they know how to do exams,” he said.
Hill told reporters after his remarks that he would “support” legislation giving FINRA exam authority over advisors and that he would “explore” such a measure.
He said that such a bill would “expand the scope” of FINRA’s oversight, including considering FINRA as a third-party examiner of advisors, adding that FINRA would be a “natural” fit to assume such a role, instead of creating a separate self-regulatory organization.
A FINRA spokesperson told ThinkAdvisor that “as we have stated previously, FINRA continues to believe that the current levels of investment advisor oversight and examinations are unacceptable and a risk to investors, and that this significant gap in investor protection needs to be addressed sooner rather than later.”
Securities and Exchange Commission Chairwoman Mary Jo White said in early April that the agency will be “discussing advancing” a rulemaking this year to require third-party advisor exams.
However, while White told Congress in late March that the SEC staff will be developing a rule proposal to require third-party exams for advisors, she said that such exams were “not an optimal place to go.”
Investment advisory as well as consumer trade groups have complained that third-party exams could prove costly for smaller firms and could open the door for FINRA to assume advisor exam authority.
Neil Simon, vice president for government relations at the Investment Adviser Association in Washington, told ThinkAdvisor in a Thursday email message that “while it is incumbent upon the SEC to reallocate its existing resources and use them more efficiently, the IAA remains convinced that Congress should either increase the SEC’s appropriation or permit the agency to levy reasonable user fees upon registered advisors dedicated to increasing the SEC’s examination program.”
IAA “strongly opposes the SRO model that FINRA has advocated for investment advisors,” as “it would impose an unnecessary new layer of regulation and bureaucracy on advisors far beyond what is necessary to increase examinations, while introducing all of the other drawbacks of an SRO – inherent conflicts of interest arising from industry funding and influence; questions regarding transparency, accountability, track record and appropriate oversight by the SEC and Congress; and lack of due process.”
But the user-fees concept has not garnered much support on Capitol Hill. Simon said that IAA “expects to meet with Rep. Hill shortly to discuss these issues.”