SEC to boost Finra oversight as self-regulator takes bigger role in broker exams
Agency to lean more heavily on Finra as SEC shifts some of its own resources toward registered investment advisers.
A move by the Securities and Exchange Commission to strengthen oversight of investment advisers could also lead to greater scrutiny of Finra.
Earlier this year, the SEC announced it would boost the number of investment adviser examiners by almost 20% — from 530 to 630. The increase would be achieved by shifting broker-dealer examiners to the investment adviser exam staff and by using part of its fiscal 2016 budget increase to hire more RIA examiners.
Following the reallocation of examination resources, the SEC will lean even more on the Financial Industry Regulatory Authority Inc. to oversee about 4,000 brokerages.
That means the SEC, which already must approve Finra rules, will be keeping a closer eye on the self-regulatory organization, SEC Chairwoman Mary Jo White told lawmakers at a hearing last week.
She reiterated that theme Tuesday.
“I think I was talking about that in the context of our transitioning some of our broker examination assets to the investment adviser side to be able to get greater coverage there, which will also have us enhancing our oversight of Finra in those areas because we’ll be somewhat more dependent on them for broker exams,” Ms. White told reporters on the sidelines of the Mutual Fund Directors Forum conference in Washington.
Finra currently conducts about 80% of broker-dealer examinations. Nearly 4,000 brokerages are members of the organization.
“Finra has always had strong oversight by the SEC,” Finra spokeswoman Nancy Condon said. “We have an established exam program in place where large firms are examined every year and all firms at least once every four. We have modern technology that continues to advance.
“We applaud the SEC’s shift in focus to examine investment advisers,” she said.
The SEC is adding to its investment adviser examination staff to elevate the 10% annual rate at which it examines the nearly 12,000 investment advisers registered with the agency. Ms. White has called increasing adviser exams an investor-protection priority.
Finra itself is becoming a topic of increasing interest for lawmakers.
Last week at a House Appropriations subcommittee hearing on the SEC budget, Rep. Kevin Yoder, R-Kan., asked Ms. White about monitoring Finra’s budget.
“How can we as Congress do our oversight?” Mr. Yoder asked.
Finra also came up at a March 15 confirmation hearing for SEC commissioner nominees.
Sen. Tom Cotton, R-Ark., asked Hester Peirce, who was nominated by the White House to replace Republican SEC Commissioner Daniel Gallagher, to elaborate on a paper she wrote about Finra reform.
Ms. Peirce said it’s unclear to whom Finra is accountable, but she did not offer a specific policy recommendation.
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