FINRA

BCG Report Claims FINRA Cost Will Exceed SEC Cost as RIA SRO

January 17, 2012 | Steve Parker

Boston Consulting Group (BCG) released a report last month comparing the cost of the various possible options of different agencies examining investment advisers. This report was conducted as a follow-up to a study released by the Securities and Exchange Commission (SEC) in January 2011, which created these scenarios based on Section 914 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The three possible options would be:

Authorizing the SEC to conduct the examinations and fund them by collecting user fees;
Authorize a new self-regulatory organization (SRO) to examine the advisers; or
Authorize the Financial Industry Regulatory Authority (FINRA) to examine the advisers

The economic analysis of the options was based on public research along with more than 40 in-depth interviews with various investment advisory firms. The SEC and FINRA were not interviewed or consulted in this analysis. The report concluded that the creation of enhanced SEC capabilities would cost $240-$270 million, while setting FINRA up as the investment adviser SRO would cost $550-$610 million, and creating a new SRO would cost $610-$670 million. These estimates were developed by projecting setup costs, ongoing mandate costs, and the cost associated with SEC oversight of an SRO.
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FINRA And SEC To Firms: Improve Branch Office Supervision

January 6, 2012 | Steve Parker

The Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) recently jointly issued a Risk Alert and a Regulatory Notice on broker-dealer branch office inspections designed to help securities industry firms better supervise their branch offices, as well as to underscore the importance of that supervision.

“An effective risk based branch office inspection program is an important component of a broker-dealer’s supervisory system and, when constructed and implemented reasonably, it can better protect investors and the firm’s own interest,” stated Stephen Luparello, Vice Chairman of FINRA.

The risk alert specifically makes the following recommendations to firms, including:

Increasing the frequency of branch inspections, especially unannounced visits;
Customizing examinations to branch activity based on risk assessments;
Involving more senior personnel in exams;
Insuring that examiners have no conflicts of interest; and
Increasing supervision of certain offices based upon surveillance data and requiring corrective actions to address deficiencies noted.

Bill Requiring State Adviser SRO Draws Mixed Response

November 2, 2011 | Steve Parker

Congressman Spencer Bachus (R – Ala), Chairman of the House Financial Services Committee, recently published draft legislation and held hearings concerning whether a self-regulatory organization (SRO) should regulate registered investment advisers. In addition to assigning regulatory responsibilities for SEC-registered firms to an SRO, Bacchus’s bill would apparently do the same for state-regulated advisers. In the recently passed Dodd-Frank Act, the SEC was assigned the task of studying the concept of extending SRO oversight to IA firms.

IA groups are split on whether an SRO should replace all or part of current SEC/State oversight . For example, the Financial Planning Coalition, comprised of the CFP Board, the FPA and NAPFA, said in September that an SRO “is not the solution” to improve and increase IA examinations. However, the Financial Services Institute (FSI) has encouraged adoption of such a plan.
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