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SEC’s Gallagher: Force RIAs to Hire Outside Auditors

Worried that the SEC might miss the next Ponzi scheme because of its limited resources, Commissioner Daniel Gallagher suggested that RIAs be forced to hire third parties to conduct examinations. Gallagher made the comments in a Q&A session with FINRA CEO Richard Ketchum at FINRA’s annual conference, InvestmentNews reports.

There are currently 11,000 RIA firms, but the SEC only has the resources to examine 9% of them — leading the agency to request additional funding to hire more examiners.

As a model for his proposal, Gallagher cited a 2009 SEC regulation requiring firms which custody client assets to hire an auditor. A 2012 bill to establish an SRO died, but Gallagher claims that there is no need for congressional approval for his proposal, which might require RIAs to use a third party — either an existing SRO or a private firm. FINRA’s Ketchum applauded the idea.

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