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Hearing of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises - Oversight of Broker-Dealers and Investment Advisors


Location: Washington, DC

Rep. Scott Garrett (R-NJ), Chairman of the Financial Services Subcommittee on Capital Markets and Government-Sponsored Enterprises, delivered the following opening statement today at a hearing to examine regulatory oversight of broker-dealers and legislative proposals to improve investment adviser oversight:

"The SEC, I think all would agree, has a lot on its plate.

"Some would argue it has too much on its plate. This is one reason you see legislative proposals such as the one from Chairman Bachus that is before us today, which would shift oversight of retail investment advisors from the SEC to an SRO.

"With too much on its plate, some of the basics aren't getting done. For instance, the SEC in recent history has been examining investment advisors approximately only once a decade. Because of this, crooks such as Bernie Madoff and others have a greater chance to defraud innocent investors. Frequency of examination, of course, is not the only consideration. FINRA, for instance, examined Madoff's broker-dealer unit more frequently, but still missed the fraud.

"Nevertheless, I look forward to a robust discussion of Chairman Bachus' bill today.

"Another concept the commission should be mindful of, especially with its crowded agenda, is appropriate use of commission resources.

"The Dodd-Frank Act requires an unprecedented avalanche of new rulemakings by the SEC.

"People can agree or disagree with how many of them are needed or are addressing actual problems, but they are required and will require a large amount of commission resources to get them right.

"Furthermore, the SEC has a history of having rulemakings overturned in the courts. Just recently, for instance, the SEC had its proxy access rule vacated.

"Unfortunately, the rule was vacated after the SEC spent over 23,000 staff hours on the rulemaking and subsequent litigation at a cost of about $2.5 million.

"So when a potential rulemaking on a uniform fiduciary standard is considered, the commission needs to thoughtfully consider the most prudent course of action.

"First, this would be undertaking a discretionary rulemaking at a time when the SEC is required to do so many other tasks.

"And remember, this is at the same time that they are only examining investment advisors once every 10 years -- many would argue that more attention needs to be paid to getting this and other core tasks right than to additional, discretionary tasks.

"Second, no one needs to be reminded about the federal government's serious spending problem that Congress is now finally beginning to address. Additional resources for an agency that has tripled its budget in recent years is not an option.

"Finally, the SEC has already wasted millions of dollars pursuing rules without doing the proper economic and cost-benefit analysis.

"So until the SEC comes forward with a reason, backed by real data, that a uniform fiduciary standard is necessary to address an actual problem -- which it did not produce in the study required by Section 913 of Dodd-Frank -- I'm not sure why such a rulemaking would be under consideration at this point in time.

"I thank the panel for appearing before this subcommittee today and I look forward to an interesting discussion."

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