RIA Compliance and Practice Management Blog

FINRA as the SRO for Investment Adviser Regulation

Posted by RIA in a Box

Apr 13, 2014 4:42:55 PM

There was a lot of registered investment adviser (RIA) regulatory news chatter this week in light of Richard Ketchem, Chief Executive Officer of the Financial Industry Regulatory Authority (FINRA), stating that FINRA is no longer attempting to be the self-regulatory organization (SRO) for investment advisers. The RIA industry has generally been strongly opposed to any FINRA involvement in RIA regulation and was quite enthused by Ketchem's latest comments.

Mark Schoeff's Investment News article titled Is FINRA pulling its efforts to be the SRO for advisers? does a nice a job of providing some perspective on this hot RIA regulatory topic. Schoeff notes that not everyone in the RIA industry is fully convinced that FINRA has officially thrown in the towel on trying to regulate RIAs. Neil Simon, vice president of government relations at the Investment Adviser Association, comments in the article that "If an opportunity presents itself, even if not initiated by FINRA, I suspect they (FINRA) would seek to gain authority over advisers. I think FINRA views advisers as both a regulatory and revenue opportunity."

Schoeff also highlights that FINRA is currently supporting the SEC's recent efforts to receive additional funding to increase the agency's ability to more frequently examine investment advisers. He quotes Ketchem as stating, "What we're really interested in right now is the SEC getting more resources. We don't foresee a time when there's a response that involves an SRO." As such, despite FINRA's difficult and declining financial condition as an organization, it would appear that at least for now, FINRA has backed off its efforts to get into the RIA regulation business

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As RIA compliance consultants, we continue to believe that the likelihood of FINRA ever getting involved with investment adviser regulation is directly tied to the emergence of another terrible Bernie Madoff-type scheme. Such an event could force Congress to spring into action quickly and brashly increase investment adviser regulation. Thus, it's very important that the states and the SEC continue to have the proper funding and resources to regulate RIAs. Such a scenario may allow the states and the SEC to successfully prevent one bad actor that is by no means reflective of the broader RIA industry from causing great long-term harm to the industry. 

Thus, this recent retreat by FINRA is definitely great news for the growth of the investment adviser industry, however it's more than ever important that all investment advisory firms continue to take their RIA compliance responsibilities seriously and establish the proper culture of compliance. 


Topics: RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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