US adviser oversight switch won't ease SEC burden

June 7 Thu Jun 7, 2012 10:38pm IST

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June 7 (Reuters) - The U.S. Securities and Exchange Commission expects state regulators to take over oversight this month for about 2,400 investment advisers that are now its responsibility, but the change may not diminish the agency's workload much.

Changes required by the Dodd-Frank financial reform law, including a shift of mid-size advisers from federal to state registration, will leave roughly 10,000 investment advisers under the agency's authority, according to new figures posted on the SEC's website this week.

That total includes 1,369 advisers to private funds - mainly hedge funds and private equity funds who have already registered with the agency under another Dodd-Frank mandate.

Overall, the shuffling will reduce the number of advisers the agency must oversee by about 25 percent, from 12,623 to about 10,000. But at the same time, assets under management by those remaining advisers will total about $48.6 trillion - about 12 percent higher than the total assets overseen by the agency in July, 2011, just before the Dodd-Frank law became effective The calculations are based on data as of April 4.

The figures were released during the same week that U.S. lawmakers conducted a hearing about legislation that would require many registered investment advisers to be overseen by a national self-regulatory organization.

Financial Services Committee Chairman Spencer Bachus, a Republican from Alabama, and Rep. Carolyn McCarthy, a Democrat from New York, unveiled the controversial bill in April because the two lawmakers believe the SEC lacks the resources to provide effective oversight.

Now, some industry observers question whether the decrease in the number advisers the SEC will now oversee will alleviate its workload.

The 1,369 newly registered private fund advisers will present more complex, higher risk operations for the agency to monitor than those of the 2,400 mostly retail advisers who are switching to states, said Barbara Roper, director of investor protection for the Consumer Federation of America.

"It suggests that their work load is at best, only marginally reduced and could even be increased under this change," Roper said.

State regulators lobbied for oversight of mid-sized advisers during the legislative process that led to the Dodd-Frank Act.

Frauds and other inappropriate behavior by those advisers are more likely to occur locally and they were better positioned to address those cases than the SEC, they said at the time.

In addition, the SEC's resources limited its focus to larger advisers, they said. The law ultimately required investment advisers who manage between $25 million and $100 million in assets to switch from the SEC to state registration.

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