Down But Not Out: Don't Count FINRA Out of SRO Fight

Think the FINRA has waived the white flag? Think again. FINRA’s chairman may have backed off the agency’s concentrated push to control registered investment advisers, but the oversight battle is far from over.

In a surprising move, FINRA Chairman Richard Ketchum told Reuters Thursday that the agency would be scaling back on its push to manage registered investment advisers, an objective that had been forefront for the agency in recent years.

In particular [FINRA] does not expect the U.S. House of Representatives Financial Services Committee to revisit the topic in the immediate future, given leadership changes following the 2012 elections, and that has led FINRA to change its strategy, [Ketchum] said.

"I'm not a big believer in beating a head against the wall," Ketchum said in an interview. "We'll focus on things we can impact."

Currently, registered investment advisers are regulated by the U.S. Securities and Exchange Commission but a lack of resources means it can only get around to examining each adviser's books about once every 11 years on average.


Ketchum’s comments sparked a firestorm of commentary, but he notably stopped short of saying that the agency will drop the matter entirely. In fact, FINRA said in a statement Friday that the issue remained a “critical investor protection issue and our views remain that it should be addressed as soon as possible.”

“While there is shared concern about the lack of resources devoted to IA oversight, there is clearly a lack of consensus about how best to address that problem,” the agency explained.

In recent years, FINRA has spent significant time and money telling Congress that it was better equipped than the overworked SEC to regulate advisors, but industry heavyweights refused to support the agency’s stance.

And in a development that further muddied the waters, the new chairman of the House Financial Services Committee, Jeb Hensarling (R-Texas), has not made a push to continue his predecessor’s work toward shifting responsibility for the advisors from the SEC to a self-regulatory organization.

Both the lack of support and the leadership agenda changes led to FINRA’s shift in direction, Reuters reported. FINRA agreed Friday, saying that “other issues are closer to the top of Congress’ agenda, so this one will likely not be resolved in the near term.”

But just because the agency will focus on other concerns does not mean that given the chance, FIRNA won’t be right back in the fight.  “Hopefully for investors that entrust their funds to investment advisers, the issue will get another look in the not-too-distant future,” the agency said. 

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