REISA Delegation Meets with Regulators in Washington

Jul 31, 2014

REISA recently sent a high-powered delegation of attorneys and industry leaders to Washington, D.C., to share concerns and exchange views about ongoing regulatory issues affecting the alternative investment space.  REISA Board Members John Grady, National Fund Advisors; Barbara Halper, FactRight; Darryl Steinhause, DLA Piper; REISA President-Elect Tom Voekler, Kaplan Voekler Cunningham & Frank; and REISA President Mark Kosanke, Concorde Investment Services, met with FINRA and SEC representatives on Wednesday, July 23, prior to the start of REISA’s Due Diligence Forum, to discuss issues facing the alternative and direct investments industry.
REISA’s discussion with FINRA representatives, which included Joe Price, Senior Vice President, Corporate Financing/Advertising Regulation; Tom Selman, Executive Vice President, Regulatory Policy; Paul Mathews, Vice President, Corporate Financing; Matthew Vitek, Associate General Counsel; and Jim Wrona, Vice President and Associate General Counsel, was a constructive and productive conversation focused on industry issues and FINRA initiatives.
The first point REISA brought up was the new investing platforms that are becoming more prevalent but which do  not fall under FINRA’s oversight since many are not registered  broker-dealers. While FINRA staff maintained that their organization does not determine what is and what is not a broker-dealer (that is a function of the SEC), they are clearly interested and paying attention to the situation.
Said Darryl Steinhause of the REISA delegation, “Registered broker-dealers are subject to FINRA’s oversight for the protection of the investor. Many of the new Internet-based platforms are not required to, or do not, comply with the broker-dealer rules. Broker-dealers have a fiduciary duty to their clients and must determine suitability of investments. Consequently, the broker dealers think the deck is stacked against them.”
Another issue that the REISA delegation brought to FINRA’s attention was the states' increasing use of merit regulation to impose concentration and/or suitability rules for certain investments, including non-traded REITs. Even though FINRA is and has traditionally been focused on suitability, the states are trying to create a separate measure of the concept.  At REISA’s suggestion, FINRA staff agreed to look at ways to engage with the states regarding their suitability and percentage limits on the ability of clients to own illiquid assets.
The final issue brought forward was the 5123 filings and the need for some type of system to allow broker-dealers to verify filings and not create duplicate filings which FINRA indicated was a problem for them.
REISA also met with senior staff members of the Securities and Exchange Committee’s Division of Investment Management, including Jim Curtis, Branch Chief, and Jaime Eichen, Chief Accountant.  The conversation focused mostly on BDCs and the ongoing regulation of offerings. REISA’s delegation stressed that they were there to represent the industry, not to advocate any particular viewpoint, and invited the SEC staff to see REISA as a resource.
According to REISA President Mark Kosanke, the day was highly successful, as REISA continues to work closely with both regulatory organizations to foster an open dialogue.