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Congressman Supports FINRA as RIA Regulator

Rep. French Hill (R-Ark.), a member of the House Financial Services Committee and a former broker, threw his support behind Financial Industry Regulatory Authority as the examiner of registered investment advisors, calling the self-regulator the “natural” choice to step in to help boost the frequency in which RIAs are audited.

Hill is exploring legislation that would provide the self-regulator with the authority to do so, he said at FINRA’s annual conference in Washington, D.C. Thursday.

“I think FINRA should have that responsibility,” Hill said. “They have an excellent network of offices across the country; they know how to do exams, charge fees for those exams.” Hill believes FINRA is better suited for RIA oversight than an “already bloated SEC that I don’t believe can do that on a national basis and stretch their resources.”

The Securities and Exchange Commission currently only examines about 10 percent of RIAs on an annual basis, which Hill says is too low.

“The mission is to expand the scope of how to examine and review investment advisors. What I’m arguing is that FINRA would be a natural and effective existing organization, with existing management and existing capabilities, to perform that task,” Hill said. “Instead of going off and trying to invent another way to do it or simply trying to expand the Commission’s staffing to do it.”

In comments to the press, Hill said he’s exploring legislation, saying he wasn’t opposed to giving FINRA authority to be a third-party examiner of RIAs in conjunction with the SEC. 

SEC Chair Mary Jo White and other commissioners have previously said they’re considering a strategy that would allow third-party auditors to perform exams to boost the number of firms regularly reviewed, but it’s unclear who those auditors might be. 

In a testimony before Congress earlier this year, Chair White said she supported the idea of compliance reviews for RIAs by third parties to supplement, but not replace, examinations conducted by the commission's Office of Compliance Inspections and Examination.

The Investment Adviser Association, a vocal opponent of past proposals to expand FINRA oversight to RIAs, said they look forward to meeting with Hill “to discuss how best to bolster the SEC’s examination of investment advisers.” In a statement responding to Hill, Neil A. Simon, IAA’s vice president for government relations, stressed the importance of maintaining the SEC’s primacy in investment adviser regulation and oversight.

“While it is incumbent upon the SEC to reallocate its existing resources and use them more efficiently, the IAA remains convinced that Congress should either increase the SEC’s appropriation or permit the agency to levy reasonable user fees upon registered advisers dedicated to increasing the SEC’s examination program,” Simon said. 

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