RIA Compliance Blog
The Financial Services Institute (FSI) Chair, Joe Russo, recently released a letter stating that the FSI supports the Financial Industry Regulatory Authority (FINRA) as the new self-regulatory organization (SRO) for investment advisers. Russo stated that the FSI has conducted two polls of its financial adviser members to determine whether they support FINRA as the SRO and 75% agreed that FINRA should become the SRO.
FSI has been asked by a number of critics why it has not advocated repealing the Dodd-Frank Wall Street Reform and Consumer Protection Act. In response, FSI says that the act will likely not be repealed as a practical matter. Therefore, FSI has decided to focus its legislative efforts on securing for its members the least intrusive of the three options for investment adviser regulation posed by the Securities and Exchange Commission (SEC). Those options are (1) the SEC charging user fees to fund more examiners, (2) FINRA becoming the dual SRO for broker-dealers and investment advisers, or (3) creating a new SRO.
FSI believes that increased SEC oversight, paid for by user fees, is not a realistic option stating, “With all the SEC’s very public problems, and with the SEC’s own Chair, Mary Schapiro, finally endorsing the SRO option, anyone who claims the SEC is a viable alternative isn’t being intellectually honest in terms of political reality.” The FSI believes that Congress will never allow the SEC sufficient funds (either via the budget or through user fees) to properly oversee investment advisers, and that the SEC has too many internal problems to handle the oversight responsibility.
In deciding to support FINRA over a new SRO, FSI states that it was better to side with “the devil you know versus the devil you don’t.” FSI concedes that FINRA is not going to be perfect, but it believes that it is better to go with what the industry knows instead of creating a new agency. FSI states that FINRA has “the resources to do the job, and they would be much more affordable for our members from a small business cost standpoint than the SEC user fee proposal.”
Since it has a long-standing relationship with FINRA, FSI believes it can work with FINRA to establish better oversight over investment advisers. According to Russo, FSI has a member on FINRA’s board, 20 members on FINRA’s district committees, and senior staff with a close working relationship with FINRA’s senior staff. As a result of this relationship, Russo writes, “FSI pledges to you that we will stop at nothing to try and ensure the most responsible, efficient, and least intrusive regulator for RIAs as possible while protecting investors. And if FINRA is not doing their job, we’re the first you’ll hear from.”
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.