The Financial Industry Regulatory Authority won’t force investment advisers to meet the same rules as broker-dealers, according to FINRA’s chairman and chief executive officer Richard Ketchum.
Speaking at the Securities Industry and Financial Market Association’s compliance and legal division’s annual seminar in Phoenix, Ketchum outlined FINRA’s regulatory approach to investment advisers if given oversight authority by the Securities and Exchange Commission.
“FINRA would implement regulatory oversight that is tailored to the particular characteristics of the investment adviser business,” said Ketchum who disputed any concerns that FINRA is only capable of regulating broker-dealers. In his speech Tuesday, Ketchum also said that FINRA would create a separate affiliate dedicated to supervising investment advisers.
FINRA should become the regulatory agency for investment advisers because there must be more frequent exams to ensure compliance and deter fraud, said Ketchum. “We don’t see the necessity for extensive SRO [self-regulatory organization] rulemaking and believe that the extent of that authority should be fully a matter for the SEC to determine,” he added.
A study issued by the SEC in January, which was mandated by the Dodd-Frank financial reform legislation last year, suggested using a self-regulatory organization to increase adviser oversight. Congress hasn't yet authorized the SEC to make a rule to implement that.
FINRA, which oversees about 4,560 brokerage firms, is interested in expanding to investment advisers. It also contends that, given its budgetary constraints, the SEC should use an SRO to take over examinations of investment advisers. Trade groups representing investment advisers have lobbied against that idea and are opposed to any expansion of FINRA’s oversight.
Michael Oxley, the former congressman who co-wrote the Sarbanes-Oxley Act of 2002, has registered as a lobbyist for FINRA to promote self-regulation of investment advisers. Oxley, a partner at Baker Hostetler LLP in Washington DC was chairman of the House Financial Services Committee and is now also a senior board adviser at NASDAQ OMX Group Inc. Passed in the wake of the Enron accounting scandal, the Sarbanes-Oxley Act aims to protect investors through corporate accountability on financial statements and controls.
Securities Technology Monitor