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Advisory committee approves proposal to enhance SEC oversight of RIAs

On Behalf of | Jun 29, 2023 | Regulatory Investigations

A new proposal is aimed at enhancing the Securities and Exchange Commission’s oversight of registered investment advisory firms, AdvisorHub reports.

The proposal was approved by the SEC’s Investor Advisory Committee (IAC), which focuses on investor-related interests, advises the Commission on regulatory priorities and various initiatives to help protect investors and promote the integrity of the U.S. securities markets.

The plan would ask the SEC to consider outsourcing oversight of RIA firms in light of the 25% growth in the number of SEC-registered investment advisors over the past seven years, bringing the total to over 15,000. During that time the SEC’s exam staff has only grown by 4%.

Last year the SEC’s Examination Division conducted examinations of 15% of RIAs, equating to a once every seven years exam cycle. The advisory committee recommended in its proposal that in order to deter fraud, the SEC should be examining RIAs no less frequently than every 4-5 years with higher risk firms examined more frequently.

The committee found that there is currently an inadequate supervisory structure that does not do enough to detect and deter fraud. The IAC recommended that the SEC implement third-party examiners for RIAs and impose user fees on SEC-registered advisors.

The revenue from the fees would be used to fund and enhance the SEC’s advisor examination program, including more frequent on-site examinations. The user fee would need to be approved by Congress. No specific fee was proposed but the IAC said it could be based on factors including the complexity of firms, the complexity of products and assets they manage, and the number of representatives.

The proposals were developed in March at a meeting of the IAC that discussed other potential plans, including giving state regulators and FINRA more oversight responsibilities and creating a self-regulatory organization to examine RIAs.

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