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SEC to Gather Data on Unregistered Advisors, Brokers

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The Securities and Exchange Commission is mulling compiling data on people who are not registered as advisors or brokers in order to catch more incidences of fraud, the agency’s chairman said.  

At an event held Thursday at the Brookings Institution in Washington, SEC Chairman Jay Clayton said that there is a “data set” on bad brokers and advisors — as compiled by the agency and the Financial Industry Regulatory Authority — but “there’s actually not a data set out there for people who are not registered as advisors or brokers. We’re trying to work on pulling a data set for those types of folks.”

Clayton said that the “amount of garden-variety retail fraud surprises me and really bothers me,” adding that he’s asked the various SEC divisions “to look at this.”

Clayton said that the agency is also “looking at changing” the types of data the agency gathers in the areas of “custody and transfer agents.”

During his testimony before the Senate Banking Committee Tuesday, Clayton said he was “worried” about the amount of retail fraud, and noted the agency’s recent launch of a Retail Strategy Task Force that will work to identify misconduct impacting retail investors — from everything involving the sale of unsuitable structured products to microcap pump-and-dump schemes. 

He’s set to testify before the House Financial Services Committee on Wednesday.

Clayton said at Brookings that “it wouldn’t shock me if you don’t see pump-and-dump schemes in the initial coin offering space,” noting that the agency’s enforcement division is seeing “a lot” of infractions involving distributed ledger technology.

That said, “I’m optimistic that there’s a fair amount of value in distributed ledger technology from the accounting, recordkeeping, market tracking perspective, [and to] add efficiencies over time and help us better monitor the markets. I’m hopeful we’re going to evolve in that direction.”

As to investment advisor exams, Clayton noted that while a self-regulatory organization to help the agency with third-party exams is “not a bad idea, it’s not front of my mind right now.”

Clayton said he’s “very pleased” with the progress on advisor exams that’s been achieved by the agency’s Office of Compliance Inspections and Examinations, which has gone from 10% of firms yearly to this year “at least 14%, maybe 15%.”

OCIE, he said, has boosted the exam rate by “using data and a fair amount of risk-based examinations. I’m comfortable we’re making progress in that space in terms of coverage.”

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