RIA Compliance Blog
The Project on Government Oversight (POGO), on May 29, wrote to Rep. Spencer Bachus (R-AL) and Rep. Barney Frank (D-MA) opposing the self-regulatory organization (SRO) bill that was reintroduced in the House of Representatives in April. We discussed the bill in a previous post, SRO Redraft Bill Reintroduced. POGO joins a long list of groups, including the Investment Advisers Association, the Financial Planning Coalition and the American Institute of CPAs, opposing the bill. POGO is particularly opposed to the Financial Industry Regulatory Authority (FINRA) becoming the SRO because it believes that “FINRA’s regulatory effectiveness is undermined by its inherent conflicts of interest, its lack of transparency and accountability, its lobbying expenditures, and its executive compensation packages, among other issues.”
The letter addresses each area of concern POGO has relating to FINRA becoming the SRO for investment advisers. First, POGO states that FINRA’s “conflicted mission” will lead “to cozy ties with the industry.” POGO says the conflict arises because FINRA collects fees from member firms and is also charged with regulating the investment adviser industry. POGO believes that FINRA’s “inherently conflicted self-funding model has contributed to an incestuous relationship between FINRA and the industry it is tasked with regulating.” In contrast, POGO contends that government agencies are not conflicted because they must comply with federal ethic laws and agency regulations designed to alleviate the conflicts.
Second, POGO is concerned with FINRA’s lack of transparency and accountability. According to POGO, FINRA, unlike a government agency, is not accountable to Congress or the public. POGO also contends that “FINRA’s board has consistently rejected calls for more transparency and accountability, even when the proposals come from the organization’s own member firms.”
Third, POGO believes that FINRA spends excessively on lobbying and executive compensation. POGO stated that FINRA spent nearly $4 million on lobbying between 2008 and 2011 as well as substantial expenditures on advertising and public interest spots in national media outlets. FINRA’s top 10 executives received nearly $13 million in compensation causing POGO to be “concerned that these lavish pay packages may have exacerbated the organization’s inherent conflicts of interests, as top officials become even more indebted to the industry they are supposed to oversee.”
Finally, POGO is concerned with the cost of creating and overseeing an investment adviser SRO. The letter cites the Boston Consulting Group study released in December 2011, which we previously discussed in BCG Report Claims FINRA Cost Will Exceed SEC Cost as RIA SRO. POGO believes that if an SRO is created, the Securities and Exchange Commission (SEC) will have some oversight duties which may create overlap between some of the responsibilities of the SEC and SRO. As a result, POGO “agrees with SEC Commissioner Luis Aguilar’s statement that creating an investment adviser SRO would be an illusory way of dealing with the problem of resources.”
POGO strongly believes that “there is no substitute for governmental regulation of the investment adviser industry.” It wants Congress to provide sufficient funding to the SEC so it can maintain oversight of investment advisers.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.