U.S. budget squeeze could push investment advisers into FINRA oversight -trade group (Complinet)

January 5, 2011

By Ted Knutson,  Complinet

It is “possible” a budget squeeze could push the Securities and Exchange Commission into calling for a self-regulatory organization for investment advisers, David Tittsworth, executive director at Investment Adviser Association, told Complinet.

Tittsworth suggested that the need to outsource regulatory oversight could be avoided by assessing advisers a fee to pay for the cost of their examinations by the SEC. The most likely candidate for fulfilling an oversight function would be the brokerage industry self-regulatory organization, the Financial Industry Regulatory Authority, Tittsworth added. As Complinet has reported, FINRA chairman Richard Ketchum has repeatedly said his organization is prepared to meet the challenge.

SEC officials have said they need more funds to meet their ongoing responsibilities, not to mention the duties added by recent financial regulatory reforms, particularly the Dodd-Frank Wall Street overhaul and Consumer Protection Act. The new Congress, especially the Republican-controlled House, has warned that it will not add to the SEC’s coffers, no matter how great the need, and may not even allocate all of the previously approved funds in the regulator’s current budget. A study by SEC staff on the advisability of a self-regulatory organization (SRO) for advisers, which is mandated by the Dodd-Frank Act, is due out in about two weeks.

While Dodd-Frank required the study, additional legislation would be needed to authorize the SEC to force advisers to register with FINRA or another privately operated regulator. Tittsworth said that commissioner Luis Aguilar is publicly opposed to recommending an SRO for advisers, while fellow Democratic appointee Elisse Walter is in favor. Tittsworth added that he expects chairman Mary Schapiro to abstain from voting because she headed FINRA before being appointed to the SEC by President Barack Obama. As a result, Tittsworth said, the two Republican commissioners, Troy Paredes and Kathleen Casey, neither of whom has publicly spoken on the issue, could be deciding votes.

Ted Knutson (Teh.Knutson@thomsonreuters.com) is a correspondent for Complinet. Complinet, part of ThomsonReuters, is a leading provider of connected risk and compliance information and on-line solutions to the global financial services community. Established in 1997, Complinet serves over 100,000 industry professionals in 80+ countries. Its connected approach provides one single place to get all the relevant regulatory news, analysis, rules and developments from the region to support firms in highly regulated industries.

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