State Securities Regulators Outline Opposition to Investment Adviser SRO

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WASHINGTON (September 13, 2011) – The North American Securities Administrators Association outlined its vigorous opposition to the creation of a self-regulatory organization for investment advisers in testimony today before the House Subcommittee on Capital Markets and Government Sponsored Enterprises.

“NASAA vigorously opposes creation of a self-regulatory organization for state regulated investment advisers,” Pennsylvania Securities Commissioner Steve Irwin, told the panel. “Moreover, NASAA reiterates its significant and longstanding concerns regarding any effort to establish a self regulatory organization for investment advisers.”

Irwin, chair of NASAA’s Federal Legislation Committee, told the panel that investment adviser regulation should continue to be the responsibility of state and federal governments and that these regulators must be adequately funded to carry out their responsibilities.

“When it comes to regulation of investment advisers, government regulators bring to the table decades of experience unmatched by any entity in existence,” Irwin said. “We see little benefit in constructing a new layer of bureaucracy, with its incumbent expense.”

State securities regulators are greatly concerned by the conflicts of interest and lack of accountability, transparency and independence of the SRO model of regulation. “There are numerous issues that must be addressed before a SRO for SEC-registered investment advisers should even be considered,” he said.

For example, Irwin noted that no matter how many safeguards are put in place, SROs have substantial and inherent conflicts of interest that governmental regulators do not. “This is particularly true where industry and investor interests conflict, as in the case of mandatory pre-dispute arbitration and the disclosure or expungement of prior settlements, judgments and investor claims,” he said. “As a membership organization, FINRA answers firstly to its members and not to the investing public. Regardless of safeguards that may be put in place, the conflicts will still exist.”

In another area of concern, Irwin noted that SROs lack transparency in that they are not subject to the Freedom of Information Act and other similar public record requirements, as are state and federal regulators. “The end result is that important public information is withheld by the SRO from the investing public,” Irwin said.

Irwin also addressed a discussion draft of legislation proposed by House Financial Services Committee Chairman Spencer Bachus to create a SRO for investment advisers. “It appears that the Chairman’s draft would nationalize the regulation of small- and mid-sized investment advisers. This would be a significant mistake that does not benefit Main Street investors, nor promote small business interests,” Irwin said.

The full copy of NASAA’s testimony is available on NASAA’s website, here.

For More Information:

Bob Webster, Director of Communications, 202-737-0900

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