RIA Compliance Blog
The Obama administration released a proposed budget last week that will boost the Securities and Exchange Commission’s (SEC) budget for the next fiscal year. The SEC claims the need for an increased budget stems from the mandatory creation of 100 rules which is required by the Dodd-Frank Act and the need to hire new examiners to regulate the market more efficiently. The proposed budget would increase the SEC’s funding by 18.5 percent from $1.32 billion to $1.57 billion.
Prior to the release of the Obama administration budget, the SEC submitted a budget request which stated that the new budget would allow for 222 new examiners. That request estimated that in 2013 it will be responsible for examining 10,000 advisers with $44 trillion in assets under management. Currently, it only has 10 examiners per $1 trillion in assets under management, a decrease since 2005 when it had 19 examiners for every $1 trillion in assets under management. The SEC is capable of reviewing only eight percent of registered advisers each year. Investment advisers have also shown a preference to be regulated by the SEC as opposed to FINRA or another self regulatory authority (SRO), as we discussed in a previous blog, BCG Report Claims FINRA Cost Will Exceed SEC Cost as RIA SRO.
Critics of the increased budget believe that the SEC may not dedicate the new funds to investment adviser exams. According to an analysis by the Investment Adviser Association, the SEC’s funding has quadrupled since 2000, from $367.8 million to $1.32 billion, but adviser coverage has declined. In response to this argument, SEC spokesman John Nester states, “The SEC was underfunded in 2000, and the increases have not kept pace with the growth of industry since. As a result, you can’t divert resources to one program without detriment to another.”
The proposed budget would also create a $50 million reserve for the SEC as a result of the Dodd-Frank Act. The money would go toward modernizing the SEC’s website and online database for corporate disclosure reports and allow the SEC to track all orders, messages and trades for the first time.
As well as an increase in funding for the SEC, the Obama administration budget also seeks to increase funding for the Commodity Future Trading Commission (CFTC) and the Department of Justice (DOJ). The proposal gives the CFTC a 50 percent increase in funding from $205 million to $308 million. The CFTC is seeking to increase their staff and technology in order to implement its new regulatory responsibilities. The budget would increase the DOJ’s funding by $55 million, which would be used to prosecute more financial crimes.
Since the Republican Party currently holds a majority in the House of Representatives and has 47 members in the Senate, this proposed budget will face some major obstacles. Republicans want to cut government spending in an effort to stop the implementation of the Dodd-Frank Act by not funding the regulators. They tend to be more skeptical of the agency’s performance, while Democrats are more likely to increase funding due to the additional requirements under the Dodd-Frank Act. Last year, both the SEC and the CFTC received substantially less money than they had requested. The SEC alone received $86 million less than what it wanted.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules.