House Democrats Pan Proposal for Policing Investment Advisers

By Corbin, Kenneth | American Banker, June 7, 2012 | Go to article overview

House Democrats Pan Proposal for Policing Investment Advisers


Corbin, Kenneth, American Banker


Byline: Kenneth Corbin

WASHINGTON a House Democrats on Wednesday took aim at a controversial bill that would establish a self-regulatory organization to oversee retail investment advisers, raising a litany of concerns about the impact on small investment practices and diminishing the roles of existing federal and state authorities.

The Investment Advisers Oversight Act, sponsored by Financial Services Committee Chairman Spencer Bachus, R-Ala., and New York Democrat Carolyn McCarthy, would direct the Securities and Exchange Commission to recognize one or more SROs to police the sector.

The push for the bill comes out of the consensus recognition that the SEC, at its current level of funding, cannot shoulder the burden of effectively regulating investment advisers. By the agency's own count, its examiners only evaluated 8% of advisers in 2011, while 40% of firms in the fast-growing sector have never been evaluated at all.

Barney Frank, D-Mass., the ranking member of the Financial Services Committee, said that before creating a self-regulating body, Congress should consider increasing funding for the SEC. "The very fact that we're considering an SRO argues strongly against the inadequate funding this Congress has given the SEC," he said at a hearing on the Bachus bill.

Frank cited the recent hit that JPMorgan Chase (JPM) took from risky trades that had gone sour. The $2 billion-plus loss that the firm reported would more than cover the budgets of the SEC and the Commodities Futures Trading Commission, Frank said, arguing that the Bachus bill would strip the federal regulators of their proper oversight authority at a time when their role needs to be expanded.

It was the 2010 Dodd-Frank Wall Street reform bill that Frank, then the chairman of the Financial Services Committee, helped push through the House that directed the SEC to conduct a study evaluating the regulatory landscape of the adviser industry. The agency included in its recommendations congressional action to deliver additional resources for it to increase its own investigations or, alternatively, to cede oversight to a self-regulatory organization as the Bachus bill would direct.

Echoing Frank's concerns about self-regulatory organizations, Maxine Waters, D-Calif. …

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