House Financial Services Committee Likely to Introduce Adviser SRO Bill After September 13 Hearing

August 29, 2011

It is widely expected that the House Financial Services Committee will introduce legislation calling for a self-regulatory organization (SRO) for investment advisers soon after the committee's subcommittee on capital markets holds a September 13 hearing on the issue.  The September 13 hearing will also examine the regulation of investment advisers and broker-dealers, while the full committee plans to hold a hearing on September 15 on the need to reform the SEC.


The capital markets subcommittee, chaired by Rep. Scott Garrett, R-N.J., will examine the studies mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act on the effectiveness of standards of care applicable to broker-dealers and investment advisers, and on the need for enhanced examination and enforcement resources for advisers—i.e. the need for a self-regulatory organization for investment advisers.  Garrett has also introduced the SEC Regulatory Accountability Act (H.R. 2308), which would require the SEC to perform enhanced cost/benefit analyses on its rules.

The full committee’s chairman, Rep. Spencer Bachus, R-Ala., is also pushing legislation called the SEC Modernization Act, which would significantly alter the SEC’s structure. The full committee postponed a hearing it was to hold in early August regarding the SEC called “Fixing the Watchdog.” That hearing has now been rescheduled to September 15, and will focus on the structure and operations of the SEC.

It remains to be seen if lawmakers will delve into the fiduciary duty rule being crafted by the SEC at the hearings. But Bachus told SEC Chairman Mary Schapiro in an early August letter that the agency should hold off on writing a rule to put brokers under a fiduciary mandate, as he supports the views aired by the SEC's two Republican commissioners, Troy Paredes and former commissioner Kathleen Casey, that the SEC has failed to “demonstrate that investors are being harmed by the current” fiduciary standard and that “harmonization” of adviser and broker rules would “enhance” investor protection.

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Investment Advisers, Legislative