SEC advisory panel backs user fees for exams

Private fund advisors registered with the SEC should pay for their own exams, according to a proposal from a group advising the agency on new rulemaking. 

On Friday, an advisory committee that has the ear of US regulators voted to recommend that large private equity firms and other registered investment advisors begin paying for their own inspections.

The Investment Advisory Committee, mandated by Dodd-Frank to advise the Securities and Exchange Commission on new rulemaking, said the proposal will help finance more inspections of the roughly 11,000 registered investment advisors under the commission’s purview, about 4400 of which are private fund advisors.

Last year, the SEC inspected only about eight percent of registered advisers, according to congressional testimony from SEC chairman Mary Jo White made in May. Nearly half (40 percent) of registered advisors have never received a knock on the door from SEC inspectors.

“In practice, this equates to an approximately 13-14 year examination cycle for SEC registrants, and is simply inadequate to detect or credibly deter fraud,” the committee said in its proposal.

The committee will recommend the SEC charge advisors examination user fees that would “provide scalable resources” to support the agency’s aim of increasing the percentage of advisors visited by the SEC.

Earlier this month, the agency’s head inspector, Andrew Bowden, said that about half of the “never-been-examined population” of registered investment advisers can expect to undergo an examination sometime in 2014.

The recommendation is likely to receive support from the commission’s chairman. In May, White told Congress that expanding the oversight of investment advisers and improving their regulation and compliance must be one of the SEC’s “top priorities.”

Legislation to impose user fees on registered advisors has already been introduced in the lower chamber of Congress. In April, California Democrat Maxine Waters introduced a bill that would allow the SEC to collect an annual fee from advisors subject to inspections in lieu of a self-regulatory organization (or SRO). That bill stalled in committee and is only receiving a one percent likelihood of becoming enacted, according to estimates made by, a legislative tracking website.