State regulators want inquiry into "inherently conflicted’ SROs
State regulators are up in arms about a provision in the proposed Investor Protection Act which would eliminate a requirement that an independent consultant hired by the Securities and Exchange Commission look into the failures at self-regulatory organizations.
State regulators are up in arms about a provision in the proposed Investor Protection Act which would eliminate a requirement that an independent consultant hired by the Securities and Exchange Commission look into the failures at self-regulatory organizations.
“NASAA is concerned that these proposed changes are attempts to limit the scope of the [required] study to the SEC without a robust review of the operation of SROs,” Denise Voigt Crawford, president of the North American Securities Administrators Association Inc. and Texas’ securities commissioner, wrote in a letter sent last Tuesday to the House Financial Services Committee.
The amendment was approved by the committee Wednesday.
The original language in the bill had called for the SEC to hire an independent consultant, which would review the “internal operations, structure, funding and need for comprehensive reform of the SEC, self-regulatory organizations and other entities” relevant to securities regulation.
But the amendment struck that specific reference to “self- regulatory organizations” and re-placed it with “as well as the SEC’s relationship with the reliance on self-regulatory organizations.”
NASAA thinks that the change gives SROs, namely the the Financial Industry Regulatory Authority Inc., a free pass.
“Given the extent of the damage caused to investors by both the Madoff and Stanford scandals — both of which had firms that were members of an SRO — we believe it would be imprudent to limit the scope of the study,” Ms. Crawford wrote.
She also called for the SEC and states to retain jurisdiction over investment advisers, rather than turn oversight over to private SROs.
“SROs are inherently conflicted and are not independent,” Ms. Crawford wrote in her letter.
Finra spokeswoman Nancy Condon declined to comment.
E-mail Dan Jamieson at [email protected].
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