The Securities and Exchange Commission’s top regulator of investment advisers is considering whether investment advisory firms should be regulated by a self-regulatory organization.
“I’m giving serious thought to whether an SRO for advisers may make sense,” SEC Division of Investment Management Director Andrew “Buddy” Donohue told approximately 170 independent mutual fund directors at the Mutual Fund Directors Forum Annual Policy Conference in Washington Monday.
Speaking to InvestmentNews after his remarks on the panel, Mr. Donohue said he was talking to members of his staff about the issue in the event he is asked for his views on it by legislators.
“The adviser population is one of the few areas that doesn’t have its own regulation,” Mr. Donohue said while speaking on a panel at the conference.
Broker-dealers, banks and mutual funds pay fees to cover the costs of their regulation either through self-regulatory organizations, deposit insurance or registration fees, while advisory firms have escaped such fees, Mr. Donohue said. “The taxpayers are paying [for] that regulatory regime,” he said of investment adviser regulation.
Further, the SEC is “resource-constrained to do the kind of work that we think we should be doing with respect to advisers,” he said. “We’re looking for opportunities to leverage what others may be able to do,” he said.
State securities regulators have suggested that the SEC raise the asset threshold for SEC registration, Mr. Donohue said. Raising the asset threshold for federal regulation would significantly reduce the number of advisory firms that the SEC examines while increasing the number of firms regulated by the states, he said. The SEC currently regulates about 11,000 advisory firms that each manage more than $25 million, while state securities regulators oversee another 14,000 smaller firms that manage less than $25 million each.
But Mr. Donohue said he has “concerns about whether or not [that would result in] potentially moving a problem,” since state governments also have limited resources.
Questions that would need to be answered include whether an adviser SRO would only conduct inspections of the firms, or whether it also should have the power to issue regulations, as well as whether such an SRO should cover SEC-registered advisers only or both SEC- and state-registered advisers.
