FINRA slows down bid for PE oversight

Long suspected to be the organization of choice if the private equity industry were to self-regulate itself, the Financial Industry Regulatory Authority has pulled back efforts to take on the job.

The Financial Industry Regulatory Authority (FINRA) has put the brakes on its campaign to regulate the private equity industry, according to reports.

Last year Congress began considering a bill that would move supervisory duties from the US Securities and Exchange Commission to one or more self-regulatory organizations (or SROs). Private equity and hedge fund managing north of $150 million in assets were required to register with the agency last March.

It was believed by many that FINRA, which describes itself as the largest independent regulator of all US securities firms, would take on the SRO role should the bill pass. As of now the bill has stalled in the House, but if it picks up steam, sources believe it would result in more frequent (and more in-depth) inspections of registered firms,

In an email exchange with PE Manager, FINRA did not definitively state it was no longer interested in supervising GPs, noting only that oversight of private equity and hedge funds “remains a critical investor protection issue” that should “be addressed as soon as possible”.

A source close to the matter told PEM that the departure of Mary Schapiro from the SEC, who was also once head of FINRA, had weakened its appetite to position itself for the SRO role.

In the email exchange FINRA said it does not expect any significant movement on its SRO candidacy anytime soon as “other issues are closer to the top of Congress’ agenda”. However, the group added, “hopefully for investors that entrust their funds to investment advisers, the issue will get another look in the not-too-distant future”.

For GPs, the setback may be welcomed. One US-based GP said the level of intrusiveness would go up if it was FINRA, and not the SEC, that held oversight powers over the industry. 

“The schedule and cycle of visits would be more frequent,” the GP said, adding other rulemaking might take place under FINRA's direction, such as more stringent limitations on gift-giving.