And the voice from the Mountain reverberated through the towers of Wall Street and beyond.

[ by Howard Haykin ]

It sort of puts the fear of God into the picture, but in reality, it was the voice of a congressional leader introducing a bill that would give federal regulators the power to impose fees on investment advisers to help the SEC expand and improve its examinations.

Maxine Waters - top Democrat on the U.S. House Financial Services Committee - and Maryland Democratic Congressman John Delaney aim to provide the SEC with more fire power - by enabling the Agency to afford to hire more examiners for inspections of advisory firms.   "This legislation answers a funding gap which has been largely responsible for the infrequency of investment adviser exams, and represents the simplest and most direct method for achieving the desired result: improved quality and quantity of these exams."  

The inability of the SEC to cover the RIA landscape is well-publicized and documented.  Currently, the Commission is only able to examine about 8% of its 11,000 registered advisers.  It wants U.S. lawmakers to boost its funding for the upcoming fiscal year, in part, so that it could add 250 examiners. President Barack Obama's proposed $3.8 trillion budget for fiscal 2014 would increase the SEC budget by 27%, to $1.67 billion.

The current bill is similar to legislation Ms. Waters introduced last year.  And there's still no certainty as to whether it can get any traction in the Republican-controlled House.  Suggested alternatives for resolving the situation include, the following:

• Allow the SEC to keep the fines and sanctions it collects from violators.
• Assign responsibility for overseeing federally-registered advisers to FINRA.  Last year FINRA won the backing of former House Fincl Svcs Chair Spencer Bachus.
• Create a new self-regulatory organization, or SRO, to handle the task.  [C-I Note:  That certainly would be one way of adding jobs to the financial industry.]

But the advisory industry and state regulators are vehemently opposed to bringing in an SRO - particularly if it is FINRA.  They say FINRA, which self-polices brokerages, would not be a good fit for the advisory business and they prefer to have the SEC do the exams.

Surprisingly, Some Positive Feedback on Current Waters Legislation.   Praise for the Waters-Delaney bill is being expressed by both industry and state regulators. 

• "This legislation represents the smartest, fastest, and most cost-effective solution to ensure greater frequency of investment adviser examinations." - - David Tittsworth, Executive Director, Investment Adviser Association.

• Heath Abshure, president of NASAA (North American Securities Administrators Association), which represents state regulators, added in a separate statement that the bill would enhance oversight of advisers while avoiding "doing so at taxpayers' expense."
   

[C-I Note:  The bottom line is, this logjam has got to be addressed.  For all these years, the flaccid oversight by the SEC has made little or no sense.  And given the current state of the SEC and the markets - both domestic and global - it is time to act.  The SEC's burdens are enormous and are likely to grow in size and complexity.  Currently, here's a sampling of what the SEC faces in 2013:

• Personnel turnover.  Between presidential terms, the Schapiro team departed and the new regime under Chairman White is just taking shape.  Firms in the industry are picking off management and senior level regulators to bolster their compliance staffs.  Turnover will remain a constant problem.
• Rulemaking and Implementation.  Dodd-Frank, and specifically the Volcker Rules, has been the greatest burden requiring thousands of personnel-hours.  Efforts to get the SEC's arms around the JOBS Act, and crafting rules for the new risks presented by "crowd-funding" may take significant staff time in 2013 - that's because little seems to have been accomplished in 2012 in this area.
• Joint Rulemaking with the CFTC in Derivatives.  You first have to understand this enormous and complex global market place before you can write rules.  It's happening, but resistance in this area as well as in the Dodd-Frank arena makes it feel like SEC staffers are working against 30-mph headwinds.
• Exchanges vs. Dark Pools and Off-Exchange Platforms.   When it comes to crying on someone's shoulder, the exchanges come to the SEC.  But this is a brave new world and new technology is adding exponentially to the issues.  The frequency of glitches due to man-made and machine-driven errors will increase as will the numbers of affected investors.  How long will each interruption take to resolve, with so many interests and interest groups out there.

The list goes on and on.  I'm exhausted.  Who wants to continue building up this list?]

For further details, go to:   [ Reuters, 4/19/13 ].

To contact the writer:  Howard@Compliance-Insights.com.