Finra as SRO regulator a ‘foregone conclusion,’ says industry watcher
Small sign, big job ahead
Hamburger thinks other options — the SEC, a new regulator — not viable; 'bad blood'
Whatever the fate of the Bachus bill currently being considered by the House Financial Services Committee, the question of who should regulate investment advisers is all but settled, according to Brian Hamburger, a securities lawyer and managing director of advisory consultant MarketCounsel.
“If an SRO for advisors gains approval, It’s a foregone conclusion that it will be Finra that regulates the industry,” Mr. Hamburger said during a panel discussion at the Pershing LLC’s Insite 2012 conference.
Despite growing criticism of the Financial Industry Regulatory Authority Inc.’s transparency, oversight record and compensation packages, Mr. Hamburger said there is no other viable option.
He noted that repairing and adequately funding the Securities and Exchange Commission to do the job more effectively might be the least costly alternative. That won’t happen, he predicted. “There is too much bad blood between Congress and the SEC.”
In the past, Mr. Hamburger has suggested that the industry itself could take on exams by hiring third-party auditors. SEC “user fees aren’t the only option” for paying for enhanced adviser exams, he said.
Others have backed creating a new self-regulatory organization to do the job. But Mr. Hamburger sees that as unlikely. He noted that the current version of the Bachus bill, which he described as the most important piece of legislation since the Investment Advisers Act of 1940, requires the entity to have full rule-making and enforcement powers. “A new SRO would have to go from 0 to 60 in no time,” he said. “They have to latch onto an existing regulator.”
Mr. Hamburger sympathized with an adviser in the audience who expressed dismay at the prospect of coming under Finra’s oversight.
“There’s no more difficult regulator to deal with than Finra. They’ve done a disservice to the brokerage industry by increasing the costs of doing business and reducing innovation,” he said. “My fear is that the same thing will happen with investment advisers.”
Finra had not comment on what was said during the panel discussion.
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