Investment Adviser Examination Improvement Act of 2012 Introduced

July 26, 2012

Representative Maxine Waters (D – CA) introduced the Investment Adviser Examination Improvement Act of 2012 (“Investment Adviser Examination Improvement Act”) on July 25, 2012. The Investment Adviser Examination Improvement Act enables the U.S. Securities and Exchange Commission (“SEC”) to charge user fees from investment advisers. The Investment Adviser Examination Improvement Act is a response to the Dodd-Frank Wall Street Reform and Consumer Protection Act which requested more stringent and frequent examination of investment advisers.

The Investment Adviser Examination Improvement Act seeks to improve oversight of investment advisers by charging fees to fund examinations by SEC regulators. The bill is an alternative to Representative Bachus’s Investment Adviser Oversight Act of 2012 (“Investment Adviser Oversight Act”) which Bachus introduced in April 2012. Bachus’s bill sought to create a Self-Regulatory Organization (“SRO”) to regulate investment advisers.  In response to July 25, 2012 introduction of the Investment Adviser Examination Improvement Act, Representative Bachus has reportedly put the Investment Adviser Oversight Act on hold.

Currently, the SEC regulates and examines investment advisers but there has been significant criticism regarding the number and frequency of examinations actually conducted by the SEC.  A study completed in 2011 revealed that for 2010, the SEC examined roughly 9% of federally registered investment advisers.

Many within the financial services industry have been calling on Congress to provide the SEC with sufficient funding so that it can increase staffing to adequately examine investment advisers. State regulators were unhappy with the Investment Adviser Oversight Act because they “believe it would subordinate state regulators to an SRO, impose redundant regulation and new costs on small and mid-size investment advisers that are impossible to justify, and very likely put many of the small firms that we regulate out of business” according to testimony from Texas Securities Commissioner John Morgan.

North American Securities Administrators Association (“NASAA”) President Jack Herstein provided a statement of support for the Investment Adviser Examination Improvement Act:  “The best way to improve oversight of federally registered investment advisers is to provide the SEC with the resources needed to do the job, either through increased appropriations or by authorizing the SEC’s Office of Compliance Inspections and Examinations to collect user fees from the investment advisers it examines – an alternative preferred by the SEC staff in its January 2011 study mandated by Section 914 of the Dodd-Frank Act.” He went on to add, “As a matter of efficiency and cost, authorizing the SEC to fund enhanced oversight of federally registered investment advisers through targeted user fees makes more sense than establishing a costly new self-regulatory organization for federal- and state-registered investment advisers.”

RIA Compliance Consultants will keep you up to date on these bills and any new legislation.

Posted by Bryan Hill
Labels: NASAA, Regulatory Inspections, SEC, SRO