January 29, 2016 / 5:57 PM / 3 years ago

UPDATE 2-U.S. SEC to scale back broker exams to focus more on advisers -sources

(Adds comment from leading trade group for investment advisers, background on how shift will impact the SEC staff)

By Sarah N. Lynch and Suzanne Barlyn

WASHINGTON, Jan 29 (Reuters) - U.S. securities regulators plan to scale back examinations of brokers so they can shift resources to improve oversight of investment advisers, which have traditionally faced less scrutiny, several people familiar with the matter said on Friday.

The staffing change at the Securities and Exchange Commission would address what some see as a major gap in its routine monitoring of investment advisory firms, after years of debate by the agency and Congress over ways to bolster oversight of the sector, the sources said.

The sources declined to be identified because the plan has not been publicly announced.

The SEC informed union representatives about the upcoming changes earlier this week, two of the sources said, noting that some staffers would have to undergo training to shift to overseeing advisers.

Brokerage firms are subject to compliance exams by both the SEC and the Financial Industry Regulatory Authority (FINRA), Wall Street’s self-funded regulator, but mid-to-large sized investment advisers are regulated only by the SEC.

Congress has been unable to reach a consensus on how to address the issue, despite proposals to set up a self-regulatory group for investment advisers, or tasking FINRA with the job.

The SEC’s 2015 annual report shows the agency examined only 10 percent of all investment advisers registered with it. But the SEC and FINRA combined were able to examine 51 percent of all registered brokerages.

SEC exams of advisers have become more complex since Congress in 2010 gave the agency new powers to oversee hedge funds and private equity funds.

The SEC would still be involved in some brokerage exams.

But the agency plans to merge its team of brokerage examiners with another group of examiners who police exchanges and other self-regulatory organizations, one of the people familiar with the SEC’s plans said.

Karen Barr, the head of the Investment Adviser Association, said it supported the SEC’s decision.

“This is a better, more efficient use of SEC resources to provide effective oversight of the investment adviser industry,” she said in a statement.

The decision to leverage FINRA’s existing brokerage compliance program is not expected to have a huge impact on the agency’s resources because it already conducts about 80 percent of all broker exams each year. (Reporting by Sarah N. Lynch in Washington and Suzanne Barlyn in New York; editing by Meredith Mazzilli and Richard Chang)

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