SEC member Gallagher calls for review of SROs

Says keeping an ‘open mind’ about shifting oversight of advisers to Finra

Oct 4, 2012 @ 3:07 pm

By Mark Schoeff Jr.

A member of the Securities and Exchange Commission today called for a review of self-regulation of financial companies but said he is keeping an open mind about shifting oversight of investment advisers from the SEC to an industry group.

In a speech in New York, SEC member Daniel Gallagher said that SROs such as the Financial Industry Regulatory Authority Inc. that regulate brokers have been “operating within a framework that we have not analyzed in depth for almost 20 years and no longer accurately reflects the state of today's markets.”

Finra's role in particular should be reassessed, according to Mr. Gallagher.

In a follow-up interview, however, he added that his speech was meant as a catalyst for a discussion about SROs rather than a critique of Finra.

A bill was introduced in the House this year that would authorize one or more adviser SROs. Finra is the strongest proponent of the measure and is seeking to become the adviser regulator.

That legislation is effectively dead for the year.

Mr. Gallagher suggested that Finra has its hands full regulating brokers.

“With all of the issues facing the broker-dealer industry it was created to oversee, should Finra be seeking to branch out into entirely new fields of responsibility, such as regulating investment advisers?” he said, according to the prepared text of his speech at the Securities Industry and Financial Markets Association's Market Structure Conference. “Is 'mission creep' affecting Finra's ability to perform its core duties?”

In the interview, Mr. Gallagher said he has not formulated a view about whether advisers should be regulated by an SRO.

“My mind is totally open on these issues,” said Mr. Gallagher, a Republican commissioner. “If there is going to be an SRO regime for advisers, I don't want to be seen as saying Finra shouldn't be doing it.”

The SRO bill was written by House Financial Services Committee Chairman Spencer Bachus, R-Ala. He wasn't able to bring the legislation to a committee vote, in part because of resistance from fellow his GOP colleagues.

Finra declined to comment.


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