Bill introduced to make FINRA self-regulating

By National Underwriter

National Underwriter


By Arthur D. Postal

Legislation has been introduced that will lay the groundwork for the Financial Industry Regulator Authority to become a self-regulatory organization for investment advisers.

The bipartisan bill was introduced by Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, and Rep. Carolyn McCarthy, D-N.Y.

Industry officials said a vote on the bill could occur as early as next month.

The bill was introduced in the face of a study by the Boston Consulting Group and commissioned by advisory trade groups which found that creating an SRO would cost at least twice as much as providing the Securities and Exchange Commission with adequate funds to examine advisors.

The legislation has strong support from members of the National Association of Insurance and Financial Advisors and the Financial Services Institute.

According to NAIFA officials, the Securities and Exchange Commission only examines nine percent of investment advisers each year.

In comparison, according to NAIFA officials FINRA examines 55 percent of broker-dealers every year, and all registered representatives are subject to annual compliance reviews by their broker-dealers.

Approximately 33 percent of investment advisers have never undergone SEC examinations, NAIFA said.

“The Bachus-McCarthy legislation would provide an important consumer protection,” said NAIFA President Robert Miller. “Public faith in all financial professionals depends on intelligent regulation that provides appropriate oversight without creating overwhelming compliance burdens.”

Miller noted that having not examined a third of investment advisers has created a trust gap between consumers and the SEC.

“Hard-working American investors shouldn’t have to be regulatory experts to know whether their financial advisor is getting the proper oversight needed to ensure they’re protected,” FSI President & CEO Dale Brown said.

Brown said that from a business standpoint, retail investment advisers have an unfair advantage over independent broker-dealers, who are examined by FINRA every two years. It’s time to protect investors and level the play field.”

Brown cited recent FSI poll of over 2,000 financial advisors showed roughly 75 percent of them favored an SRO for retail investment advisors

NAIFA’s Miller wants Congress to authorize FINRA to become the self-regulatory organization, subject to appropriate SEC supervision, of all SEC-registered investment advisers.

“Just over 25 percent of NAIFA members are investment advisers, and 99 percent of these are also registered reps subject to FINRA oversight,” Miller said.

“Having FINRA serve as the SRO for investment advisers would be the least disruptive and most cost-efficient option for these dual-registered NAIFA members.”

Originally published on LifeHealthPro.com