Forbes – Congressional Bill HR4624, the “Investment Adviser Oversight Act of 2012” has been introduced into Congress, with a hearing scheduled to be held tomorrow, June 6, 2012. The co-sponsors of the Bill are Finance Committee Chairman Spencer Bachus (R-AL) and Carolyn McCarthy (D-NY).
The idea behind the Bill is that the SEC is spread too thin in terms of staffing and funding resources and so it can not effectively supervise its registered investment advisers. The Dodd-Frank law in fact mandated a study to review and analyze the need for the SEC to have enhanced examination and enforcement resources for investment advisers. This study was completed in January 2011, and indicated, not surprisingly, that resources to meet the pending demand caused by the registration requirement of Dodd-Frank were indeed scarce.
The Bachus-McCarthy proposal in HR4624 is to have FINRA, a non-governmental self-regulatory organization (SRO) now regulating only broker-dealers, also regulate a portion of the registered investment adviser universe. An oft-quoted statistic supporting this proposal is that the SEC examined only 8% of the approximately 12,000 register advisers last year, while FINRA examined 58% of brokers, hence the conclusion that the public would be better served by having FINRA as the regulator of investment advisers.