The National Association of Independent Broker/Dealers (NAIBD) is working to prevent proposed legislation in Congress from increasing the auditing costs of small independent broker/dealers. These could rise to $100,000, the group says, and might even drive many of these firms out of business.
Since the introduction of H.R. 1212, an amendment to the Sarbanes-Oxley Act of 2002 proposed by Rep. Paul E. Kanjorski (D-PA) earlier this year, NAIBD board members have met with various members of Congress to get another amendment passed that would spare smaller firms from the increased auditing requirements.
Rep. Scott Garrett (R-NJ) recently introduced the Garrett Amendment, a separate amendment that the NAIBD says would “focus regulatory attention and resources toward rooting out potential fraud and investor scams like the Bernard Madoff scam.”
Without the Garrett Amendment, NAIBD says H.R. 1212 would require small firms to be audited by the Public Company Accounting Oversight Board (PCAOB), whose policies and procedures are geared to auditing large, publicly-held broker/dealers. This would increase the small broker/dealers’ costs by 500 to 1,000 percent, according to the NAIBD—costs that would likely be passed on to investors and their financial advisors. More specifically, NAIBD estimates the new audit fees would range between $50,000 and $100,000. Currently, they are between $5,000 and $10,000.
NAIBD says Congress could vote on the Garrett Amendment as early as Thursday.
“Audits of small, non-public firms which never hold customer cash or securities are meaningless to investors. Making them more costly and complex does nothing to enhance investor protections,” says NAIBD Chairman Steve Distante. Besides not being able to afford the auditing costs imposed by H.R. 1212, Distante says the financial statements of these firms are already reviewed by the Financial Industry Regulatory Authority (FINRA) on regular cycles throughout the year, so the audited data that is the subject of H.R.1212 is “old news.”
NAIBD was formed in 1979 by five southern California broker/dealers who met regularly to discuss areas of common interest such as due diligence, compliance and regulation. The organization is comprised of 150 independent broker/dealer and industry providers and suppliers from across the country.
