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Regulatory
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Bachus Backtracks After Democrats Introduce Bill Saying SEC Should Regulate RIAs; A Surprising Turn Of Events But Debate Will Likely Drag Into 2013 |
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Thursday, July 26, 2012 00:41
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Tags: Advisor businesses | FINRA | RIA compliance | RIAs
On a day when major news broke about the regulation of Registered Investment Advisers, Investment News’s Mark Schoeff Jr. yesterday did the best job of reporting on new developments in one of the biggest stories currently affecting private wealth advisors. Schoeff got a statement from Spencer Bachus, Republican chairman of the House Financial Services Committee, and Bachus made some surprising comments.
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“From the beginning, I have been willing to listen to and work with anyone who has an idea about how to correct the current lack of examinations,” Bachus said in a prepared statement. “Our only goal should be to deter bad actors and to protect American investors. I see no way to do that without timely examinations."
Then Bachus added a surprise, “Who conducts those examinations and how is still open for debate, as far as I'm concerned.”
Moreover, Bachus put his own bill to regulate RIAs — which would put FINRA in charge of overseeing examinations of RIAs — on hold indefinite hold, as Schoeff reported in his lead.
Bachus backtracked on his own bill! Is his support for making FINRA the regulatory body responsible for RIA examinations wavering?
Schoeff gives no indication, and since Washington politics is not my specialty, I wouldn’t venture a guess.
The timing of Bachus’s backtracking could not have been more curious, however. As Schoeff mentions, it came just hours after legislation was introduced Wednesday morning by Rep. Maxine Waters (D-Calif.) that would allow the SEC to charge user fees for exams -- an approach backed by RIAs not affiliated with a Broker-Dealer. Waters’ bill would maintain the Securities and Exchange Commission's purview over investment advisers and RIAs would pay fees to fund the required regulatory regime and bureaucracy.
Schoeff reminds us that time is running out for Washington to arrive at a decision on how to regulate RIAs.
This is typical Washington politics. It will be the end of September before you know it, time for the election-year recess. Nothing will get done.
As reported here many months ago, it’s unlikely an decision will be made on the issue of RIA regulation until after the fall election, and then, depending on who wins the presidential race, a decision might wait until after January.
Schoeff’s reporting outdid other magazines most popular with RIAs that have a Washington correspondent. Neither AdvisorOne nor Financial Planning published Bachus’s prepared statement.
If any readers have insight into what Bachus is thinking, please speak up.
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With So Little Action On Dodd-Frank Over The Past Two Years, Many Are Dubbing It Dud-Frank |
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Tuesday, July 24, 2012 12:52
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Tags: Dodd-Frank | regulation | sec
The Dodd-Frank Act was supposed to be the cure-all for regulatory malfeasance. Instead, its ineffectiveness and the slow and painful process has only resulted in 123 of the 398 rule making requirements coming into being. Of the SEC’s 95 mandatory regulations, only 28 have been finalized. This Website Is For Financial Professionals Only
This has earned the Act the moniker Dud-Frank. The act has been placed practically in stalemate mode from the authority it gave the SEC to place anyone who gives retail investors advice under the fiduciary umbrella.
This provision and the SEC’s struggle to come up with a uniform definition of fiduciary has divided the industry even further between registered representatives at large firms who are currently only held to a standard of suitability and independent RIAs who differentiate themselves much more strictly as fiduciaries.
The regulatory impact of Dodd-Frank is almost non-existent. The greatest impact has probably been felt in the family office industry since Dodd-Frank for the first time explicitly defined a family office and a family member. This caused many family offices to have to register as investment advisors and threatened the privacy families of wealth have traditionally held dear.
One impact the Act has made on investment advisors has been to require small to midsize advisors to register on the state level rather than the federal level. Private fund advisors have also had to register so the SEC may more closely monitor dark pools.
Mandatory arbitration clauses in brokerage agreements is also slated to be banned, although no action on that front has been taken. Certain provisions of Dodd-Frank will only affect certain segments of advisors.
So the issue of how all the provisions will be enacted has become very complex. It’s projected another year will go by before the full ramifications—or the Act’s effectiveness—can be determined.
Commentary from the industry has obviously had a hand in keeping new regulatory mandates in balance. The state of Dodd-Frank at this point clearly shows the complexity of this issue and the difficulty in coming up with the appropriate protections without prohibitivly restricting investment activity. |
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Dodd-Frank Mandates Registering Municipal Advisors But Congressional Committee Says SEC's Proposed Rule Is Over The Top |
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Monday, July 23, 2012 13:16
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Tags: Dodd-Frank | municipal bonds | regulation
A Congressional hearing on Friday, both Republicans and Democrats said that legislation the SEC is seeking that would require municipal advisors to register crosses into over regulation. The legislation was mandated by Dodd-Frank and was proposed by the SEC in December 2010. This Website Is For Financial Professionals Only
The fear of the industry is that the rule would classify too many people—even local officials and bank tellers—as fiduciaries, subjecting them to fiduciary standards and increasing costs for local and state governments.
A new bill was introduced that more specifically classifies municipal advisors as those who formally give advice to governments on financing municipal projects. This exemption would also include brokers and municipal securities dealers. It would also prevent municipal advisors from being classified as fiduciaries.
The mandate for municipal advisors to register comes as the result of the current ability for practically anyone to label himself as an advisor, even if they are not qualified to be one or have fraudulent intent.
But the SEC’s proposed rule goes overboard and could even include municipal underwriters. Part of being an underwriter is being impartial to either side. If an underwriter had to become a fiduciary, loyalty to one side or the other would have to enter the picture.
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Letters From Failed Suicide Attempt Of PFGBest CEO Reveal Lack Of Regulatory Oversight As Well As How Embezzled Funds Were Used |
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Wednesday, July 18, 2012 13:46
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Tags: fraud | investing | regulation Concern for lack of oversight by regulatory authorities is emerging from the embezzlement case of Peregrine Financial Group Inc. (PFG). Letters left by Peregrine’s CEO Russ Wasserman were uncovered during a failed suicide attempt last week when regulators along with the FBI discovered during the ensuing investigation that $215 million of client funds were missing. This Website Is For Financial Professionals Only
Regulators examined PFG as early as 1993. But Wasserman stated in one of the letters that throwing the regulators off his track was an easy task. Wasserman was arrested on Friday, July 15, for lying to regulators.
The letters further disclosed how the stolen funds were used. Some were used to pay regulatory fines and fees. More of the funds were used to bolster PFG’s capital and to build a new corporate headquarters.
Most of the funds were used to restore losses of capital so the firm could stay in business. Accusations are that PFG created false statements to show regulators. The fraud continued for nearly two decades. Other executives at the firm are now being investigated.
A statement signed by Wasserman said that in 1993, he was forced to embezzle the funds or go out of business. The firm became known as PFGBest. The Commodities Futures Trading Commission (CFTC) said it basically handed day-to-day monitoring of the firm over to the National Futures Association (NFA).
But the letters uncovered recently may indicate that the CFTC was monitoring the firm more closely than previously thought. The fact that the fraud continued for such a long period is leading the CFTC to reexamine the way it monitors firms. Wasserman states that he was continually harassed by regulators and has no remorse for his actions.
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New Privacy Laws Being Passed By A String Of States May Conflict With FINRA Social Media Rules |
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Friday, July 13, 2012 14:19
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Tags: compliance | FINRA | Social Media Recent legislation passed by the state of Maryland that prohibits prospective employers from requiring the usernames and passwords of potential employees may set up privacy tenets that run against FINRA’s social media rules. This Website Is For Financial Professionals Only
Such legislation is expected soon to be passed in Illinois, California, Delaware, Massachusetts, Minnesota, and New York. Similar legislation at the federal level is also being considered. Demanding access to a prospective employee’s social media accounts is an invasion of privacy according to the legislation.
The requirements by FINRA and other regulatory bodies to monitor employee activities through social media outlets such as Facebook and LinkedIn may inadvertently conflict with the new privacy laws. Such supervision is allegedly critical to compliance to supervisory mandates by regulators.
Yet FINRA claims it never mandated such monitoring; it only stipulates that advisor usernames and passwords be on file in case the accounts need to be accessed. For example, if a red flag arises about an advisor’s activities, that advisor’s social media accounts may be accessed during an investigation of possible wrongdoing.
The new statutes may offer loopholes that allow investigation based on regulatory concerns but the parameters for such investigations are not clear. There are no specifics to guide firms in the information required before an investigation ensues or what may or may conflict with the new privacy laws.
As well, outsourced resources that work with advisors may be exempted from the regulatory requirements. On the privacy front, outsourced independent contractors may insist on the privacy protection allowed under the new legislation.
Staying informed on legislative efforts involving social media as well as regulatory developments related to its use can keep you prepared and help you make your social media involvement more effective. It also can keep you compliant in an ever-changing reglatory environment.
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