Some 4,200 advisory firms can expect more oversight and higher costs under legislation that would remove them from SEC oversight and place them under state regulation. Investor Protection Act of 2009, which the House Financial Services Committee is expected to approve this week, contains an amendment by Rep. Barney Frank (photo), that would raise the threshold for SEC registration of investment advisory firms to $100 million, from $25 million.
That would result in state regulators' gaining oversight of about 4,200 of the 11,300firms now registered with the SEC. The act also contains new rules to harmonize regulations between broker-dealers and investment advisers.
Under the amendment, “examinations could happen more frequently and more rigorously” for firms moving to state regulation as well as for larger firms remaining under the SEC. The SEC examines about 9% of its regulated advisory firms annually.
If it is able to concentrate on larger firms, the SEC will have more time to conduct exams, states currently examine advisory firms more frequently than the SEC does. The bill also contains provisions to more than double funding for the SEC, raising the budget to $2.25 billion and authorizing the commission to impose fees on investment advisory firms to cover the cost of inspecting and examining firms for which the agency retains jurisdiction.
For firms moving from SEC to state registration, regulation would likely become more complicated and expensive. Many of those firms would have to register with more than one state.
Currently, SEC-registered firms need not register in states in which they have few clients. State-registered firms with locations in more than one state will find themselves subject to different state requirements concerning custody rules, capital requirements, advisory contracts and privacy regulations.
Although some think it will be more costly to them, some advisers said that they think that state regulators are easier to deal with than the SEC. More at Investment News.
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