Glossary term
Self-Regulatory Organisation (SRO)
Subject: Compliance and Regulation, Regulatory Supervision and Enforcement
Also known as: Self-Regulatory Body
A self-regulatory organisation is an industry or professional body that writes and enforces rules for its members, with powers given or recognised by law or by a statutory regulator.
Explanation
Some of the day-to-day policing of a sector is handled by the sector itself. Stock exchanges, professional institutes and trade bodies for brokers, advisers or advertisers often do this. The SRO sets entry standards, conduct rules and exam requirements, monitors members and can discipline them, with penalties ranging from warnings and fines to expulsion. The state regulator usually oversees the SRO and may approve its rules, so that it cannot go easy on its own members. Supporters say industry knowledge makes the rules practical and cheaper to run. Critics point to the risk of conflicts of interest and of regulatory capture, where the body protects members over the public. Members of an SRO answer to two authorities, the body itself and the statutory regulator above it.
Example
A national association of investment advisers is recognised by the securities regulator as an SRO. It sets a code of conduct and runs annual inspections of its 800 members. After an inspection finds that one adviser sold unsuitable products to elderly clients, the association fines the firm, suspends two individuals and reports the case to the statutory regulator, which can take further action.
Not to be confused with
- Trade association
- A trade association lobbies and serves its members. An SRO holds recognised power to set binding rules and discipline them.