Dodd-Frank News Center

FINRA Urges SEC to Create SRO for Investment Advisers Amid Fierce Debate Spurred by Dodd-Frank Study

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter and CCH Derivatives Regulation Law Reporter.

FINRA has entered a fierce debate over Dodd-Frank’s call for an SEC study on enhanced examinations of investment advisers by urging the SEC to create a self-regulatory organization (SRO) for investment advisers. In a letter to the SEC, FINRA said that, given the Commission’s funding limits, it is unlikely that the SEC will be able to accomplish more frequent adviser examinations on its own. To deal with what FINRA called an ``intractable resource problem,’’ the SEC was urged to seek authority to establish an SRO for investment advisers to augment the government’s efforts in overseeing advisers. The debate over an SRO for advisers has intensified with industry associations voicing strong opposition to the idea.

Financial Crisis Inquiry Commission Subpoenas Goldman Sachs

This story appeared in Bank Digest.

The Financial Crisis Inquiry Commission has issued a subpoena to Goldman Sachs & Co. for failing to comply with a request for documents and interviews in a timely manner. In creating the Commission under the Fraud Enforcement and Recovery Act of 2009, Congress granted it the subpoena power. Over the past several months, the Commission has made numerous requests for documents from Goldman Sachs as well as requests for interviews with key personnel. The Commission stated that it is committed to using its subpoena power if there is a lack of, or delay in, compliance and that it “will not be deterred from getting desired information.” In addition to the subpoena, the FCIC released a Goldman Subpoena Chronology.

FINRA Investment Adviser Oversight Stripped from House Legislation

This story appeared in Jim Hamilton's World of Securities Regulation.

A floor amendment to the Wall Street Reform and Consumer Protection Act, HR 4173, offered by Rep. Cohen of Tennessee stripped a provision out of the legislation that would have authorized the SEC to delegate the regulation of investment advisers to FINRA. The provision had been inserted during the mark up of the bill by the Financial Services Committee. Offered during the mark up by Committee Ranking Member Spencer Bachus of Alabama, the amendment would have allowed the SEC to permit or require FINRA to enforce compliance by its members and associated persons with the provisions of the Act. The Bachus Amendment would have empowered FINRA to enforce the fiduciary duty provisions in the Investment Advisers Act against not only broker-dealer members but also against any affiliated investment advisory firm or any associated person. Additionally, the amendment would have given FINRA sweeping rulemaking authority. The provision would have extended FINRA’s jurisdiction to SEC registered investment advisers that manage almost 80 percent of all advisory firms’ assets under management.

SEC Commissioner Pushes Back on Bachus FINRA Amendment to House Legislation

This story appeared in Jim Hamilton's World of Securities Regulation

SEC Commissioner Luis Aquilar is deeply troubled by an amendment to the House Investor Protection Act that would transfer oversight of a substantial number of investment advisers from the SEC to an industry self-regulator, FINRA, which he describes as outsourcing regulatory responsibility from the SEC. In remarks at the Institute for Law and Economic Policy, the Commissioner was incredulous that House leaders would vote to outsource core functions of SEC oversight at the same time they are creating a new federal Consumer Financial Protection Agency to buttress protections for consumers. In his view, a government agency subject to Congressional oversight and multiple audits by agencies such as GAO is accountable in ways that an industry organization can never be. The Commissioner also said that the legislation is "at war with itself" because other provisions enhance SEC investment adviser oversight. But he is buoyed by news reports that House Financial Services Committee Chair Barney Frank intends to strip the Bachus Amendment out of the legislation as it heads to the House floor.

House Financial Services Committee Passes Legislation Reforming SEC, PCAOB and SIPC Oversight

By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.

The House Financial Services Committee has passed legislation reforming the SEC to strengthen its powers, better protect investors, and efficiently and effectively regulate the securities markets. The failures to detect the Madoff and Stanford Financial frauds demonstrated deep deficiencies in the existing securities regulatory structure. The Act doubles the authorized funding for the SEC over the next five years and provides dozens of new enforcement powers and regulatory authorities. Thus, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police the markets. The Investor Protection Act, HR 3817, also authorizes the SEC to collect user fees from advisers to cover the costs of compliance examinations and investigations.

Treasury Department Issues Cumulative Dividends Report

This story appeared in Bank Digest.

The Treasury Department has released its Cumulative Dividends Report as of Sept. 30, 2009. The report covers the dividends paid by financial institutions that have received assistance from the federal government pursuant to such programs as the Capital Purchase Program, Systemically Significant Failing Institution Program or Automotive Industry Financing Program.

Broker-Dealer Standards Must Be Harmonized, Regulators Say

By Sarah Borchersen-Keto, CCH Washington News Bureau, Contributing Author, the CCH Federal Banking Law Reporter.

Regulation of broker-dealers and investment advisers must be harmonized in order to protect consumers, many of whom are likely to be unaware of the different obligations and protections the two functions operate under, regulators told Congress October 6.

The standard for broker-dealers offering investment advice should be raised to the same fiduciary standard—which puts the customer’s best interests foremost—as that which applies to investment advisers, said Denise Crawford, President of the North American Securities Administrators Association.

FDIC-IG Reports on Agency's Role in Monitoring IndyMac

This story appeared in Bank Digest.

The FDIC's Inspector General has issued a report examining the FDIC's role in the monitoring of IndyMac Federal Savings Bank. IndyMac was closed on July 11, 2008, by its primary regulator, the Office of Thrift Supervision. As of July 31, 2009, the estimated cost of the resolution to the Deposit Insurance Fund is approximately $10.7 billion. The IG's report examines when the FDIC became aware of problems at IndyMac and what actions were taken by the FDIC to mitigate those problems and identifies the following four areas for further study and consideration:

• The FDIC's frameworks for establishing a supervisory approach and making deposit insurance determinations.
• Delegations of authority and reporting requirements surrounding backup examination authority decisions.
• Appointment and transition of case managers for large, high-risk institutions.
• Authorities related to requesting back-up examinations and pursuing enforcement actions against non-supervised institutions.

Regulator Questioned on Handling of Insider Trading Allegations

This story appeared in Bank Digest.

Senator Charles Grassley, R-Iowa, is asking the Financial Industry Regulatory Authority—the securities industry's regulator—to explain how it handled allegations made in April 2008 about insider trading and other violations of the rules and regulations that govern capital markets. Earlier in 2009, Sen. Grassley had asked the Securities and Exchange Commission for the status of its investigation into the same allegations.