SEC Needs to Keep a Closer Eye on FINRA, Says Report

According to the Boston Consulting Group, the US Securities and Exchange Commission should step up its oversight efforts over the Financial Industry Regulatory Authority. The BCG released its findings following a six-month review of the SEC’s internal operations, an examination that was ordered under the new Dodd-Frank law. The consulting group’s job was to examine the SEC’s structure, internal operations, personnel, resources, relationships with self-regulatory organizations, and technology.

BCG notes that with FINRA now providing the majority of market surveillance for most US equity trading, the SEC’s scrutiny of the SRO is now more important than ever. BCG also believes that the SEC should keep a closer watch on FINRA’s member regulation and enforcement units.

Currently, the SEC’s Office of Compliance Inspections and Examinations employs about 50 people tasked with inspecting 12 SROs. Still, BCG says that these SROs are under no obligation to regularly disclose information about their regulatory operations to the SEC. BCG believes that this disclosure of data should become a formal requirement. Also, even though there are over 100 staff attorneys at the SEC’s Division of Trading and Markets looking at SRO filings, the consulting group believes these employees could stand to deepen their understanding of the markets.

SEC Chairman Mary Schapiro says that BCG’s analysis confirms her worries that the SEC does not have all the resources required to do everything it is expected to accomplish. BCG found that the SEC would need about 400 more employees to successfully manage its workload.

The SEC will set up several working groups each focused tackling the report’s different recommendations.

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Related Web Resources:
SEC should step up scrutiny of Finra: Report, Investment News, March 11, 2011
Audit: SEC staffing too small to fulfill law



Boston Consulting Group

Office of Compliance Inspections and Examinations

Division of Trading and Markets