U.S. lawmakers bill would let SEC pay for adviser exams with fees

WASHINGTON, April 19 Fri Apr 19, 2013 11:50am EDT

WASHINGTON, April 19 (Reuters) - The top Democrat on the U.S. House Financial Services Committee has introduced a bill that would give federal securities regulators the power to impose fees on investment advisers to help the agency expand and improve its examinations.

The bill from Financial Services Ranking Member Maxine Waters and Maryland Democratic Congressman John Delaney aims to help the Securities and Exchange Commission afford to hire more examiners to conduct inspections of advisory firms.

"This legislation answers a funding gap which has been largely responsible for the infrequency of investment adviser exams, and represents the simplest and most direct method for achieving the desired result: improved quality and quantity of these exams," Waters said in a statement.

The SEC has long complained that it does not have the resources to properly examine the investment advisory industry. Currently it is only able to conduct exams of about 8 percent of its 11,000 registered advisers.

The bill is similar to legislation Waters introduced last year. But whether it can get any traction in the Republican-controlled House remains to be seen.

There has long been controversy and disagreement over how to improve the frequency and quality of adviser exams.

Some lawmakers and the brokerage industry have called for the creation of a self-regulatory organization, or SRO, such as the brokerage industry-funded Financial Industry Regulatory Authority, to take on the task.

FINRA has lobbied for the job. Last year, it won the backing of former House Financial Services Chairman Spencer Bachus, who introduced dueling legislation with Waters' bill to create an SRO.

But the advisory industry and state regulators are staunchly opposed to having an SRO, particularly if it is FINRA.

They say FINRA, which self-polices brokerages, would not be a good fit for the advisory business, and they prefer to have the SEC do the exams.

The head of FINRA told Reuters in February that his group was backing off its SRO lobbying campaign until, at least, such a measure had broader support from lawmakers and the SEC itself.

The SEC, in the meantime, continues to lacks the funding to comprehensively expand its examination program.

Both the industry and state regulators praised the Waters-Delaney bill on Friday.

"This legislation represents the smartest, fastest, and most cost-effective solution to ensure greater frequency of investment adviser examinations," said Investment Adviser Association Executive Director David Tittsworth.

Heath Abshure, president of the North American Securities Administrators Association, which represents state regulators, added in a separate statement that the bill would enhance oversight of advisers while avoiding "doing so at taxpayers' expense."

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