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Wednesday, June 6, 2012 - 08:15

US Hse Panel Asks Whethr SEC,FINRA Shld Oversee Invest Advisrs

--Majority Of Witnesses Support Bnaking Cmttee Chair Bill

WASHINGTON (MNI) - The House Financial Services Committee will debate Wednesday whether part of the oversight of investment advisers, currently in the hands of state regulators and the Securities and Exchange Commission, should be transferred to a self regulatory organization, most likely FINRA.

This is what a bill -- H.R. 4624, Investment Adviser Oversight Act of 2012 -- introduced in April by the committee's chairman himself, Spencer Bachus, is proposing.

And to debate the proposal during the hearing, the Committee invited a panel that is largely supportive of it.

Based on written testimonies made public by the Committee, two out of six witnesses oppose the move.

Testifying on behalf of the North American Securities Administrators Association, John Morgan, Securities Commissioner of Texas, said, "Unfortunately, H.R. 4624 embraces a 'one size fits all' approach to regulation."

"It will require some federally registered investment advisers and most state registered investment advisers to become members of an SRO, pay membership fees to the SRO, comply with its rules, and be subject to inspection by the SROregardless of whether the firm has clients in more than one state or conducts business in a way that has any demonstrable effect on national markets."

So he said in his prepared testimony that "State registered investment advisers should not be required to become members of an SRO."

The argument in favor of an SRO oversight is that the SEC's resources only allow it to examine a small fraction of the advisors population, 8% being the percentage mostly used by the supporters of the bill.

The bill, according to its proponents, addresses that gap and relieves the SEC.

For Morgan, however, "the regulation of investment advisers should continue to be the responsibility of state and federal governments." So the solution is to give "sufficient resources" to them.

Investment Adviser Association Executive Director and Executive Vice President David Tittsworth also expressed his opposition to the bill.

"The bill would subject thousands of advisory firms to an additional layer of regulation by a private regulator with broad rulemaking, inspection and enforcement authority and, in all likelihood, that private regulator would be FINRA," Tittsworth stressed.

Among the drawbacks of the proposal, he cited "minimal transparency and accountability, insufficient oversight by the SEC and Congress, conflicts of interest, excessive costs, and the lack of meaningful due process protections and cost-benefit analysis restraints."

"We particularly oppose extending FINRAs jurisdiction to investment advisers due to its lack of transparency and accountability, questionable track record, the costs involved, and its experience and bias favoring the broker-dealer regulatory model," he added.

The Financial Industry Regulatory Authority -- an SRO -- defended the case for switching the oversight to an SRO.

FINRA Chairman Richard Ketchum argued that "the legislation addresses the current lack of Commission resources and allows self-regulatory organizations registered with and subject to strict SEC oversight to assist government regulators in providing closer and more regular oversight of investment advisers who serve predominantly retail investors."

He added that "The legislation also would free up resources for the SEC to examine investment advisers who primarily serve institutional clients."

He was joined by Securities Industry and Financial Markets Association Chairman-Elect Chet Helck in his support for the bill.

"Its purpose is not to foist new regulatory oversight on retail investment advisers, but to restore the oversight that is already supposed to be happening but is not, while relieving pressure on the limited examination resources of the Securities and Exchange Commission," Helck said.

He added that "when broker-dealers and investment advisers provide the same service, they should be held to the same standard," which Financial Services Institute President & CEO Dale Brown agreed with.

So did Thomas Currey, on behalf of the National Association of Insurance and Financial Advisors, leaving little resistance to Bachus' bill.

"The legislation addresses an important gap in regulatory oversight the regular examination of investment advisers with a common sense regulatory fix empowering a self-regulatory organization with authority to oversee investment advisers," said Currey.

The House Financial Services Committee's hearing starts at 10:00 am ET Wednesday and is titled "H.R. 4624, the Investment Adviser Oversight Act of 2012."

** MNI Washington Bureau: 202-371-2121 **

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