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Advisers to bear cost of new Finra powers

Thursday 11 November 2010 - by Will Henley


US investment advisers are likely to shoulder the costs of any new oversight regime brought in by the Financial Industry Regulating Authority, according to a senior official.

Paul Andrews, Finra's vice president and managing director of international services, told GFS News this week that an investment adviser charge would likely be levied if Finra succeeds in its attempt to become the 11,000 strong investment industry's new self-regulating organisation (SRO).

Andrews, admitting that any increase in Finra's responsibilities would probably involve an increase in resources, said: "It would be a charge to the industry - there would be no federal funds, no taxpayer money to fund this extra layer."

He said: "It would require an increase in Finra's resources with some additional specialists. In all likelihood it would require the creation of a new corporate entity that would be separate but affiliated with its own board and management."

Last week it was revealed that Finra chief executive Richard Ketchum has written to the Securities and Exchange Commission, which is conducting a study under the Dodd-Frank Act on the case for a new investment adviser SRO.


Staking out the regulator's case for the new role, Ketchum said that any new body should be given "some rulemaking authority" and ought to "ensure a dramatic increase in the frequency of examinations and resources devoted to enforcement".

Alongside mandating the creation of a new SRO, the SEC is likely to stipulate its structure and funding mechanism.

Finra is already self-funded from fees from the broker intermediary industry, and observers say this would represent an attractive option over the SEC and federal funding.

Andrews continued: "They could come up with any sorts of funding mechanisms, but I think they would look to the broker and dealer community and how Finra is currently funded and follow a very similar viewpoint and think that's the appropriate way to go.

"The SEC has very limited resources to oversee and inspect [investment adviser] firms so we think an SRO can complement the SEC's resources to bring an additional level of inspection and oversight that they just don't have the resources to do. So that is the primary motivation."



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