SEC Leaves Wall Street Without Any Direction

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The failure of the Securities and Exchange Commission (SEC) to detect Bernard Madoff’s Ponzi scheme initiated a debate over whether Congress should take steps to subject investment advisers to more rigorous and frequent examinations.

However, the SEC’s recently released report on how to enhance the oversight of investment advisers leaves Wall Street without any direction.   

The SEC’s report, required under last year’s Dodd-Frank financial law, identified three options and handed the issue back to Congress, which does not advance this process any further at all.         

The report stated Congress could impose user fees on the investment advisory industry to help the SEC enhance its oversight.     Alternatively, Congress could designate a self-regulatory group for advisers or it also could authorize the Financial Industry Regulatory Authority (FINRA) to examine advisers who also are registered broker-dealers.   

Further, the SEC is due to release a study next week on expanding the same fiduciary standard applied to investment advisers to brokers.

Unlike brokers, investment advisers that manage large amounts of assets are only subject to SEC oversight and do not have a self-regulatory group.   Registered investment advisers, for their part, have resisted any efforts to have them answer to the FINRA, a private regulator of brokers.

Some industry experts argue that since many brokerage firms employ advisers and brokers, and so would prefer not to have multiple regulators.    If a new regulator is created, dual-registered firms should get to choose the regulator.   

Further, the SEC should be consistent.   If there is to be common standard, there ought to be uniform enforcement across brokers and advisers.    Although, the SEC’s task is a difficult, given the wide variety of opinions in the industry, if it wants to standardize the rules, it needs to standardize the enforcement of those rules.

Anna Timone (195 Posts)


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