Tuesday, September 13, 2011

SEC Commissioner Supports "Swift and Decisive" Action on SRO for Advisers

Delivering the keynote address yesterday at the Annual Conference of the North American Securities Administrators Association (NASAA), SEC Commissioner Elisse Walter said that "swift and decisive" action is necessary if securities regulators are to enhance the effectiveness of the oversight of investment advisers. Commissioner Walter noted that investors have entrusted approximately $43 trillion of assets to federally-registered investment advisers, but the SEC cannot fulfill its mandate to examine those advisers with the agency's existing resources. Although provisions of the Dodd-Frank Act will relieve some of the burden on the SEC because many mid-sized advisers will now be subject to state supervision, Walter believes that any relief will only be temporary as the business of these advisers grows and as new markets develop. Accordingly, Walter supported the creation of a self-regulatory organization (SRO) for investment advisers in order to strengthen examination oversight.

Section 914 of the Dodd-Frank Act required the SEC to review and analyze the need for enhanced examination and enforcement resources for investment advisers and report to Congress on regulatory or legislative steps necessary to address concerns identified in the study. Walter observed that the SEC's study suggested three options: (1) the funding of examinations by the SEC from user fees paid the advisers; (2) the creation of a new SRO for investment advisers; and (3) delegating the oversight of firms that are dually registered as both investment advisers and broker-dealers to the Financial Industry Regulatory Authority (FINRA). Walter, who had issued a separate statement concerning the study because she believed that it was predisposed against discussing an SRO, said yesterday that industry opposition to user fees and the annual appropriations process in Congress make it difficult to implement the other options. Accordingly, she believes that an SRO for advisers represents the best choice to address an immediate need.

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