SEC chair cites advisor exams as a top priority

Knocking on more doors of registered investment advisors is ‘essential’ for investor protection, SEC chairman Mary Jo White told lawmakers on Thursday.

The US Securities and Exchange Commission has so far examined only 8 percent of the 1,100 registered investment advisers now under its watch, a percentage not satisfactory to the agency’s recently sworn in chairman Mary Jo White. 

“Significant additional coverage is essential if investors are to be appropriately protected,” White said before a hearing at the House Financial Services Committee on Thursday. 

The SEC is requesting a $1.6 billion budget for fiscal year 2014, representing a 30 percent increase in funding from the previous year. As part of its budget proposal, the SEC aims to hire an additional 250 investment adviser examiners. 

Mary Jo White

The regulator’s long-term goal is to examine roughly half of all investment advisers, the SEC said in its request for more resources. 

That goal may have been made more difficult with a recent exodus of top SEC brass. Recently Carlo di Florio, the agency's head examiner, stepped down to lead a new division of risk and strategy at the Financial Industry Regulatory Authority (FINRA). Shortly thereafter Bruce Karpati, the head of the agency's asset management team that focuses on the private equity industry, among other things, left to join the private sector.

Private equity and hedge fund advisers managing more than $150 million in assets were required to register with the agency as investment advisers in March 2012. 

After the hearing, White said the agency had no strong opinion about moving oversight of the industry to an industry-funded, self-regulatory organization (SRO), according to a report from InvestmentNews. In the past some commentators have mentioned FINRA for the SRO role, but that possibility appears less likely today.

In a related industry matter, lawmakers repeatedly grilled White on implementation of the JOBS act during her testimony. White responded that JOBS act rulemaking was “at the top of my agenda”. 

The JOBS Act, signed into law last April but still awaiting SEC finalization, allows capital seekers to use public channels and mass advertising to solicit accredited investors. Expected to become finalized sometime in the coming months, the JOBS act will no longer prohibit GPs from openly discussing their fundraising efforts during industry conferences, conversations with representatives of the media and other public setting engagements.

A major industry concern is how GPs could verify that a mass marketing pitch only netted accredited investors under the rule, which the SEC has yet to provide details on. During testimony White said she was aware of the issue, noting it was “currently under active discussion”.