The much-anticipated hearing on Rep. Spencer Bachus’ Investment Adviser Oversight Act of 2012 took place earlier this week. The bill proposes to shift oversight over investment advisers to a self-regulatory organization (SRO), with the Financial Industry Regulatory Authority (FINRA) as the lead candidate.
Much of the hearing’s testimony focused on the cost to small advisers, and no lawmaker seemed enthusiastic about the bill as proposed. David Tittsworth, executive director of the Investment Adviser Association, took the lead in arguing against the bill. In his opening statement, he said, “The substantial drawbacks of an SRO significantly outweigh any potential benefits. These drawbacks include 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.” Well said.
Even at the risk of sounding like a broken record, I am asking myself why we should re-invent the wheel, or throw the baby out with the bathwater. It will cost more to conduct more exams, everyone agrees on that. Why not fund the SEC for them to do their job, if necessary with user fees? After all, firms would also pay for it if FINRA or another SRO were their regulator.
Many lawmakers think that the bill is a “good start”, but that the devil is in the details. Let’s see how the chips will fall later in the summer. I will keep you posted.
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