SRO Is Key to Boosting Advisor Exams: Former SEC Chief Pitt

Just as the SEC prepares for a new chairwoman, the agency is experiencing “internal turmoil,” and its workload under the Dodd-Frank Act presents myriad compliance challenges for the agency—chief among them is effectively examining advisors, former SEC Chairman Harvey Pitt said Thursday.

Speaking at the Investment Adviser Association conference in Arlington, Va., just outside Washington, Pitt said that despite the fact that the SEC has a newly focused and more sophisticated exam program, the agency lacks the proper funding to effectively examine advisors, and a self-regulatory organization like FINRA, along with outside compliance audits, would provide the solution.

Giving FINRA the authority to examine advisors and outside compliance audits are “not mutually exclusive,” Pitt (right) told reporters after his speech. The SEC, he said, “can’t handle” examining advisors.

Indeed, Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), told reporters after his speech at the conference that while the agency was “indifferent” as to whether user fees assessed by the agency or an SRO should be used to help the agency boost advisor exams, he welcomes congressional action authorizing an SRO. “The problem to solve is to increase the number of advisor exams we conduct,” he said.

As to Pitt’s suggestion to use outside compliance audits, di Florio called it ”an interesting idea.”

Pitt also told attendees that FINRA CEO Richard Ketchum’s recent announcement that he had “ceased advocating” for FINRA to become advisors’ SRO “doesn’t mean this issue won’t resurface.”