A bill for the Securities and Exchange Commission (SEC) to allow the Commission to collect fees from investment advisers for funding of examinations has been recently re-introduced in Congress by Representatives Maxine Waters of California and John Delaney of Maryland. A similar bill was proposed, but not passed, by Waters in 2012. The current bill aims to stimulate growth in the hiring of additional examiners by the SEC, in order to improve the agency’s reach in inspecting advisory firms, using funds accumulated from anticipated user fees assessed to such firms. Currently, the SEC’s examinations program is exclusively funded by taxpayers.
The origin of this legislation lies in the daunting task of appropriately examining the expanding investment advisor industry. Of the around 12,000 or so current registered investors in 2011, only 8 percent have been examined, with about 40 percent never having been examined. Waters explained in a statement that the bill seeks to achieve “improved quality and quantity of these exams,” and bridges the “funding gap” that exists within the SEC. Waters and Delaney’s bill is backed, in part, by state regulators and the advisory industry, including the Investment Adviser Association (IAA) and the North American Securities Administrators Association (NASAA). Opponents support “outsourcing” the adviser examination process to the brokerage industry-funded Financial Industry Regulatory Authority (FINRA), or to another self-regulatory organization (SRO). Alabama Representative Spencer Bachus was the leader of a bill last year supporting the shift of adviser oversight to FINRA or a created SRO, a bill that was running concurrently with Waters’s 2012 bill, of which both notably failed in the legislature.
More debates about the funding of the SEC’s examination program, either through a fee structure or through an alternate agency, will certainly remain well into the future, particularly as this bill progresses through the halls of Congress. For more information, or for assistance on other compliance topics, please contact us at (619) 278-0020 to schedule a consultation.