Legislation that would establish one or more self-regulatory organizations for investment advisers has not crashed, but its trajectory is stalling.
Prior to a
June 6 hearing on the bill written by House Financial Services Committee Chairman Spencer Bachus, R-Ala., most observers expected that the measure would receive a “mark up,” or committee vote, by the end of June.
Witnesses representing investment advisers and state regulators raised many warnings about the bill, which
didn't generate much support from Democrats or Republicans.
On Tuesday, the committee released its schedule through early August, and there is still no mention of a vote on the SRO bill. There is a Capital Markets subcommittee mark up on Aug. 1 on “bills to be announced at a later date.”
Indications after the June 6 hearing, however, were that the next stop for the bill, the Investment Adviser Oversight Act (
H.R. 4624), would be a full committee, rather than a subcommittee, mark up. Committee staff did not reply to two requests for comment.
Even if the bill does not get a vote in the House financial panel this summer, it could come up sometime in September. But the prospects for action on the House floor, assuming committee approval, are quickly diminishing given the congressional calendar.
The House will be out for August recess from Aug. 6 through Sept. 7. The House also is scheduled to be out on Sept. 17-18, Sept. 24-28 and for three weeks in October.
“We don't expect it to get out of the House this year,” said Dale Brown, chief executive of the Financial Services Institute, one of the chief proponents of the bill. “Ultimately, that's all right because they're working to get it right.”
Investment adviser groups have been urging members of the House committee to oppose the bill, which they said would foist a costly new layer of additional regulation on advisers.
“My working assumption is that the committee is trying to figure out how to proceed with H.R. 4624,” said David Tittsworth, executive director of the Investment Adviser Association. “The hearing raised a lot of concerns among committee members on both sides of the aisle. There would have to be a fair amount of work before Chairman Bachus could move forward with this bill.”
Mr. Bachus introduced the bill as a response to a January 2011 Securities and Exchange Commission study, mandated by the Dodd-Frank financial reform law, that indicated that the agency lacks the resources to examine annually more than the approximately 8% of registered investment advisers that it currently reviews. With smaller advisers switching to state regulation, the SEC estimates it now oversees about 10,000 advisers.
The SEC study provided three options for increasing adviser exams: establishing an SRO, allowing the SEC to charge user fees for exams or expanding the reach of the
Financial Industry Regulatory Authority Inc., the broker regulator, h to include advisers who are dually registered as brokers.
An SRO would strengthen investor protection by increasing the number of advisers who are examined each year, according to Mr. Bachus. His bill doesn't mention Finra by name, but it is seen as opening the door to Finra oversight of advisers, a role that Finra covets and that advisers oppose.
The problem for Mr. Bachus may be that he's having trouble convincing his GOP colleagues to sign on to the bill, which has only three cosponsors.
“My sense is there are Republicans on the committee who have concerns about the bill as it's written,” said Duane Thompson, senior policy adviser for Fi360.
Mr. Brown is not worried about the elongated schedule.
“Our goal was to…lay the ground work for continued action next year,” Mr. Brown said. “Everything that has happened is consistent with that.”
If the bill doesn't get a House vote this year, it likely will come back next year, according to Mr. Thompson.
“Each new Congress is a new day,” he said, referring to the fact that legislation that dies in one congressional session often is reintroduced in the next session.
