Although it's still early in the fight, opponents of a self-regulatory organization for investment advisers landed some punches at last week's House hearing and will have the bout extended for a while.
On Friday, the House Financial Services Committee announced the remainder of its June schedule, which does not include a vote on legislation that would authorize one or more SROs to conduct examinations of investment advisers.
A committee vote on the
measure, written by the panel's chairman, Rep. Spencer Bachus, R-Ala., had been expected before the end of June. This gives the forces fighting an SRO more time to build support for a different approach.
“Any delay at this point is good news,” said David Tittsworth, executive director of the Investment Adviser Association. “I'm pleased they moved [a vote] beyond June.”
Mr. Tittsworth and other opponents have argued that and SRO would represent a costly new layer of regulation for advisers that threatens to eliminate jobs in the sector. They are vexed by the notion that the Financial Industry Regulatory Authority Inc., the broker SRO, might becomed the adviser SRO.
Backers of the SRO measure point to the fact that the SEC only reviews about 8% of nearly 12,000 registered advisers annually. In introducing the bill with Rep. Carolyn McCarthy, D-N.Y., Mr. Bachus noted that Finra examines about 58% of registered brokers each year. He said an SRO is needed to prevent another multi-billion ripoff like the Bernard Madoff Ponzi scheme.
“This bipartisan bill helps close what everyone agrees is a glaring regulatory gap – a gap that puts the average American investor at risk and undermines investor confidence,” Mr. Bachus said at last week's
hearing.
SRO critics, even though they were outnumbered 4-2 at the witness table, were able to focus much of the hearing on whether an SRO would hurt small advisory firms, according to observers.
“If you're going to score points, I would give it to SRO opponents,” said Duane Thompson, senior policy analyst at Fi360. “The small business element came out loud and clear as a new, weighty issue to be considered.”
As Mr. Thompson outlines in a
blog post for InvestmentNews, however, the bill, with the committee chairman as its champion, is still likely to move forward.
“All bets are still on the bill getting out of committee,” Mr. Thompson said.
But before that happens, an alternative approach is likely to be contained in a bill that Rep. Maxine Waters, D-Calif., has promised to introduce. Her measure would authorize the SEC to charge user fees for exams.
Like Mr. Bachus, Ms. Waters is responding to an SEC report to Congress in January 2011 that stated that the agency lacks the resources to thoroughly oversee investment advisers. The report offers three ways to strength adviser regulation: allow the SEC to charge user fees; establish an SRO; or allow Finra to extend its jurisdiction to include advisers who are dually registered as brokers. Each option requires congressional approval.
Most Democrats favor bolstering the SEC budget. Last week, Rep. Barney Frank, D-Mass., ranking member of the House Financial Services Committee,
denounced a Republican-led House Appropriations subcommittee bill that would provide only $50 million of the $245-million increase the SEC requested to its $1.32-billion budget.
On Tuesday, the Democratic majority on the Senate Appropriations subcommittee is likely to provide an SEC funding level that is much closer to the agency's request. This would build momentum for the investment-adviser lobby's preferred option – the SEC user fee.
But Mr. Bachus threw cold water on the notion that more SEC funding is the answer to improving adviser oversight.
“The SEC itself has admitted that even if the agency receives the full amount of funding it has requested for 2013, it would be able to examine only 1 in 10 investment advisers,” Mr. Bachus said.
That may be the case. But the debate over SEC funding will ratchet up a notch this week.
