Plan to expand Finra's authority concerns SIFMA

Nov 13, 2009 @ 11:16 am

By Sara Hansard

The brokerage industry will put up a fight to stop a potential power shift that could give the Financial Industry Regulatory Authority Inc. oversight of much of the investment advisory industry.

Ken Bentsen, executive vice president for public policy and advocacy at the Securities Industry and Financial Markets Association, noted in an interview that the brokerage industry trade group is disturbed about the proposed oversight change — which was included as a provision in the proposed Investor Protection Act — because of its broad implications.

“It's created some confusion,” he said of the provision, which was approved Oct. 28 by the House Financial Services Committee. “The way it's written, it could extend [Finra regulation] to fund companies.”

SIFMA has members that operate mutual funds, and those companies “are concerned about it,” he said.

SIFMA's opposition to the oversight change, offered as an amendment by Rep. Spencer Bachus, R-Ala., the ranking Republican on Financial Services Committee, could create a potential threat to the provision when the full bill goes up for a vote by the House early next month.

Early last year, SIFMA senior managing director and general counsel Ira Hammerman told InvestmentNews that investment advisory firms should come under a self-regulatory organization. While he did not specifically say they should come under Finra, he acknowledged that “perhaps that would be a logical place to look to provide that function."

Finra regulates brokers, and it and much of the brokerage community has argued that investment advisory firms would receive closer oversight if Finra were in charge of advisers. Opposition to the amendment from SIFMA will create more obstacles to its adoption.

Advisers have strongly resisted Finra regulation. They argue Finra is not well-suited to regulating advisers because Finra's rules are more appropriate for the transaction-based brokerage business than they are to investment advisory firms, which operate under fiduciary standards.

House Financial Services Committee Chairman Barney Frank, D-Mass., has said he will try to remove the provision from the bill during House debate on the bill.


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