On September 20, 2012, the Financial Services Roundtable (FSR), a trade organization representing the 100 largest financial services companies in the country, announced that former Minnesota Governor Tim Pawlenty will become its new President and Chief Executive Officer on November 1. Pawlenty will succeed Steve Bartlett, who announced his retirement plans in March. Pawlenty spent 15 years as a labor lawyer before serving as a state representative and later Governor of Minnesota.
FSR actively lobbies for changes to the Dodd-Frank Act and its supporting regulations. Its goals include defeating Dodd-Frank’s price controls on debit card fees, the Volcker Rule, and whistleblower provisions. Dodd-Frank requires the drafting of over 300 new regulations that will apply to banks and other financial firms. FSR took the lead on past deregulation efforts, including some of the efforts to repeal the Glass-Steagall restrictions on affiliations between banks and insurance companies. FSR has also filed amici briefs in several important financial cases at both the appellate and Supreme Court level. READ MORE
Congress continues to struggle with the issue of proper oversight for investment advisors. Despite catastrophes like the Bernie Madoff scheme, SEC budget constrictions have resulted in only a handful of investment advisors being reviewed by the Commission each year (as compared to over half of all broker-dealers). Various bills have been floated to remedy the situation.
In April, the Investment Adviser Oversight Act of 2012 was introduced in the House. Proposed as an amendment to the 1940 Investment Adviser Oversight Act, the new act seeks to regulate investment advisors by requiring them to join a new self-regulatory organization (SRO) that would be funded by their membership fees. Though not explicitly set forth by the Act, the Financial Industry Regulatory Authority (FINRA) was expected to create and oversee the new governing SRO. READ MORE
A recent report released by the Government Accountability Office (“GAO”) last week concluded that the SEC can improve its oversight of the Financial Industry Regulatory Authority (“FINRA”), a self-regulatory organization charged with policing securities broker-dealers. The GAO’s criticism of the SEC is a politically hot issue because Congress is currently considering whether to shift authority for overseeing investment advisors from the SEC to FINRA—the subordinate organization the SEC is purportedly doing a poor job of overseeing.
The GAO report was a product of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which required the GAO to study the SEC’s oversight of FINRA. In particular, the report examined (1) how the SEC has conducted its oversight of FINRA in the past; including FINRA rule proposals and the effectiveness of its rules; and (2) how the SEC plans to enhance its oversight of FINRA.
The report concluded that that while the SEC routinely inspects many of FINRA’s programs, it does not conduct any retrospective review, i.e., it does not review whether FINRA’s rules are actually effective. In fact, the report concluded that the SEC does not even have a process for retrospective review.
Significantly, the GAO report also concluded that the SEC had conducted virtually no review of FINRA operations aimed at executive compensation and corporate governance issues. The SEC claimed it had purposefully overlooked compensation and governance operations because of competing priorities and resource constraints, and instead had focused its resources on FINRA’s regulatory departments, which the SEC perceived as programs with the greatest impact on investors.
Given these and other conclusions, the GAO recommended that the SEC “encourage FINRA to conduct retrospective reviews of its rules” as well as establish its own process for examining FINRA reviews. It further recommended that the SEC utilize a risk-management framework in developing its future oversight plans.
The SEC came under scrutiny, including from U.S. Senator Charles Grassley, following an April 25, 2012 front page article in the Wall Street Journal which reported that the Agency had inadvertently revealed the identity of a whistleblower during an inquiry into his former employer.
The investigation involved Pipeline Trading Systems LLC, which runs stock trading platforms under its new name, Aritas Securities LLC. According to the article, an SEC Staff Attorney showed a notebook belonging to the whistleblower to a Pipeline executive during an interview. The executive recognized the handwriting regarding trades, meetings, and phone calls. Pipeline settled with the SEC on October 24, 2011. READ MORE