Farming out examinations of registered investment advisers to the private sector is not a policy that Securities and Exchange Commission Chairman Jay Clayton wants to pursue.
For years, the agency has been criticized for the low percentage of exams it conducts each year. There are about 12,000 advisers that fall under the purview of the SEC, and the agency has examined only about 10% of them each year. One way that has been suggested by commission members and experts to increase the number of exams is for the SEC to allow consulting firms, other regulators or other third-party agents to conduct them.
The previous SEC chairman, Mary Jo White, had
written a proposal for third-party exams that she said was ready for her successor to take up. But Mr. Clayton is not embracing that approach.
"It's not a bad idea, but it's not front of my mind right now," Mr. Clayton said at the
Brookings Institution in Washington on Thursday.
Ms. White promoted third-party exams to augment the SEC's reach despite what she called limited resources. During her tenure, she consistently told members of Congress that adviser exams were one of her priorities for increased funding.
The SEC and Mr. Clayton submitted a fiscal 2018 budget that
keeps funding flat compared with last year. Nonetheless, he forecasts that the agency's Office of Compliance Inspections and Examinations will examine about 14% — maybe 15% — of advisers in fiscal 2017.
"We've done so using data and doing a fair amount of risk-based examination," Mr. Clayton said. "I'm watching it. But I'm comfortable that we're making progress in that space in terms of our coverage."
The SEC has been criticized for the coverage gap between advisers and brokers, who are examined by the industry-funded broker regulator, the
Financial Industry Regulatory Authority Inc. Finra examines annually about half of the 3,800 brokerages registered with the organization.
"At some point [the SEC is] going to have to figure out how do they improve their supervision and examination of IAs," Kenneth E. Bentsen Jr., president and chief executive of the Securities Industry and Financial Markets Association, said in an interview on the sidelines of the Brookings event. "The data is pretty clear that that's a deficit in comparison to the supervision and examination of B-Ds. The ball's really in their court and Congress, for that matter."
Groups representing investment advisers have resisted the idea of a self-regulatory organization , especially Finra, taking over adviser exams. Legislation to establish third-party exams was introduced in the House in 2012 but died in committee and has not resurfaced.
