FINRA makes pitch to oversee investment advisers

WASHINGTON Tue Sep 13, 2011 8:19am EDT

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WASHINGTON (Reuters) - The U.S. regulator for the brokerage industry will make its pitch to Congress on Tuesday for why it should be selected as the new self-regulatory watchdog for investment advisers.

In prepared testimony before a panel of the House Financial Services Committee, the head of the Financial Industry Regulatory Authority said his organization is prepared to establish a new entity armed with the proper expertise to examine advisers for compliance with federal securities laws.

His comments are the most extensive yet as FINRA seeks to convince very wary investment advisers that it is capable of taking on the task.

Investment advisers are now examined by the Securities and Exchange Commission, which is so short-staffed that it gets to the task around once every 11 years.

The industry supports the status quo of being regulated by the SEC or by state regulators, and worries that FINRA would subject them to a set of rules more appropriate to brokers.

"FINRA would establish a separate entity with separate board and committee governance to oversee any adviser work, and would plan to hire additional staff with expertise and leadership in the adviser area," said FINRA Chief Executive Richard Ketchum, adding that FINRA is "uniquely positioned" to do the job.

Tuesday's hearing comes as Congress and the SEC consider new regulatory policies for broker-dealers and investment advisers, including a uniform fiduciary standard and expanding oversight of advisers.

Both of these subjects were not immediately addressed in last year's Dodd-Frank Wall Street overhaul law. Instead, the law required the SEC to study the issues first.

The push to expand adviser oversight was reinvigorated after the SEC's failure to catch Bernard Madoff's Ponzi scheme.

Earlier this year the SEC released a study to lawmakers spelling out three possible solutions: imposing user fees to help fund the SEC's adviser exam program, enacting a new law to establish a self-regulatory organization (SRO) for advisers, or giving FINRA authority to examine dually-registered brokers and advisers.

The decision of whether or not to establish a self-regulatory organization for investment advisers now rests with Congress.

A draft bill circulated for discussion last week by House Financial Services Chairman Spencer Bachus would establish a new self-regulatory group (or SRO) for advisers, but it does not specifically designate FINRA as the SRO of choice.

The investment adviser industry will testify on Tuesday about why it does not support Bachus' bill.

"We strongly oppose an SRO for the advisory profession," said the Investment Adviser Association's executive director David Tittsworth in prepared remarks. "We particularly oppose extending FINRA's jurisdiction to investment advisers ... due to its questionable track record and bias favoring the broker-dealer regulatory model."

It is also still unclear whether Bachus' bill has any chance of gaining traction in the Democratically-controlled Senate. In a statement late last week, Senate Banking Committee spokesman Sean Oblack said committee Chairman Tim Johnson believes it is too premature to move forward on any new legislation.

(Reporting by Sarah N. Lynch, with additional reporting by Suzanne Barlyn; Editing by Bernard Orr)

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