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Adviser Update: Will FINRA and the SEC Be the New Dynamic Duo?

adviser attorney new yorkAdvisers can expect the relationship between the Securities and Exchange Commission and Financial Industry Regulatory Authority to get a little cozier, according to Richard Ketchum, chairman and chief executive of FINRA. As we have discussed on this blog, the broadening of FINRA’s authority has been the subject of intense debate in recent months.

FINRA, which oversees brokerages, routinely advises the SEC of the most severe violations, including potential criminal conduct and fraud. However, the two regulatory authorities do not always see eye to eye. SEC Commissioner Luis Aguilar publicly criticized FINRA last year for not giving the agency sufficient access to data about brokerages and their employees. Meanwhile, FINRA has argued that it is limited in its supervision of brokerages because it lacks legal authority to examine the investment adviser side of their operations.

However, given the increased oversight responsibilities created by the Dodd-Frank financial reform law, Ketchum sees their partnership as essential.

“Collaboration between SROs (self-regulatory organizations) and government agencies is going to be even more important,” Ketchum told Reuters.

As we have also discussed on this blog, FINRA has argued publicly that it is the best option to ease the SEC’s burden, particularly when it comes to adviser oversight. Broadening FINRA’s authority over advisers would be “logical,” Ketchum said.

Despite FINRA’s position on investment oversight, the plan has not gone over well among many investment advisers, who are opposed to oversight by a self-regulating organization. According to a recent report, 81% of advisors prefer an enhanced SEC exam model over FINRA as an SRO, while 75% of advisors said they would prefer a new SRO over FINRA even if it cost them more.

We will, of course, keep you updated on this very important issue. Although legislation has been introduced in the U.S. House of Representatives, it has not yet moved out of the discussion phase.

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