A roundup of some of the more unusual items that crossed our desk recently.
By Cyril Tuohy
The Securities and Exchange Commission (SEC) has an “immediate and pressing” need for more resources to oversee and examine registered investment advisors (RIAs), according to SEC chair Mary Jo White.
In testimony before a congressional panel for the SEC’s $1.7 billion budget request for Fiscal Year 2015, White said more thorough and more frequent examination of advisors would “better protect investors and our markets.”
“The number of SEC-registered advisors has increased by more than 40 percent over the last decade, while the assets under management by these advisors have increased more than two-fold, to almost $55 trillion,” White said.
The 2015 fiscal year begins Oct. 1, 2014.
White said the $1.7 billion request would allow the SEC to hire 639 more people in “critical, core areas and enhance our technology.”
In fiscal year 2013, the SEC examined only about 9 percent of RIAs.
In 2004, the SEC had 19 examiners per $1 trillion in investment advisor assets under management, but today there are only eight examiners per $1 trillion, White said. Asset volumes have increased, as have the complexity of financial services products, she added.
“More coverage is clearly needed as the status quo does not begin to provide sufficient protection for investors who increasingly turn to investment advisors for assistance navigating the securities markets and investing for retirement and family needs,” White said.
White delivered her comments before the Senate Subcommittee on Financial Services.
As the nation’s top securities industry regulator, White has made the examination and compliance process a pillar of her tenure.
In the wake of the Great Recession, critics wondered why the SEC hadn’t done more to protect Main Street investors. Mindful of the financial crises in which trillions of dollars of wealth vanished overnight, White wants to make sure the SEC brings a tougher approach to Wall Street to protect investors.
The SEC’s Office of Compliance Inspections and Examination (OCIE) is responsible for policing advisors. Earlier this year, officials from the OCIE uncovered violations and breakdowns in controls among advisors to private equity funds in more than 50 percent of their visits.
“To the extent that private equity advisors are engaged in improper conduct, it adversely affects the retirement savings of teachers, firemen, police officers and other workers across the U.S.,” Andrew J. Bowden, OCIE director, said in a statement.
Included in the request for 639 new SEC staffers is the hiring of 316 people in the agency’s examination program in the OCIE. The 316 people would allow the agency to examine more RIAs, “particularly in the investment management industry,” White said.
Under White, the SEC has become more aggressive about regulating municipal advisors as well. A “registration regime” for municipal advisors is set to take full effect later year. The SEC reported that nearly 1,000 municipal advisors have registered under the new requirements.
White also has modified the agency’s longstanding “no admit/no deny” settlement protocol requiring firms ranging from investment houses to advisors and broker/dealers, to admit wrongdoing as a way to boost public trust in the agency.
The SEC oversees more than 11,000 investment advisors, 10,000 mutual funds and exchange-traded funds, 4,450 broker/dealers, 450 transfer agents, 18 securities exchanges, and a host of public finance and regulatory bodies.
In addition, the SEC has responsibility for overseeing 2,500 advisors to hedge funds and other private funds, nearly 1,000 municipal advisors, and 10 credit rating agencies.
Many of the new responsibilities placed at the feet of the SEC were mandated by the Dodd-Frank Act and the Jumpstart Our Business Startups (JOBS) Act. Dodd-Frank is designed to tighten regulation of the financial services industry.
The JOBS Act is designed to make it easier for small companies to raise capital, grow and hire workers. It loosens restrictions applicable to private offerings and initial public offerings. Last year, the SEC repealed the ban on general solicitation for private offerings of securities, expanding the scope of fundraising activities of investment funds and startups.
Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at firstname.lastname@example.org.
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