SEC caught in ideological budget battle

Political wrangling likely to delay commision's bid for more funding to carry out Dodd-Frank

Feb 20, 2011 @ 12:01 am

By Mark Schoeff Jr.

The Securities and Exchange Commission has found itself in the cross hairs of House Republicans determined to deny it the funding it says it needs to implement the many mandates called for by the Dodd-Frank reform bill.

While the Republicans contend that they are looking to cut the SEC's budget in the name of fiscal responsibility, Democrats and other critics see it as nothing more than an effort to gut the financial reforms called for in Dodd-Frank.

“The SEC is not perfect, but it has a new set of responsibilities,” said Rep. Barney Frank, D-Mass., the ranking member of the House Financial Services Committee. “What we're seeing here is ideological opposition to reform of the financial system.”

Spurred by freshmen conservatives in their caucus, the House GOP is seeking tens of billions in cuts from the fiscal year 2011 budget, which has yet to be approved by Congress.

Senate Democrats are pushing back against the effort, and President Barack Obama has threatened to veto a bill the House was poised to approve late last week that would excise $100 billion from his fiscal 2011 proposal.

The intractable budget differences between Republicans and Democrats likely mean that for the foreseeable future, the SEC will not see an increase in its $1.1 billion budget as it works to implement the massive Dodd-Frank financial reform law.

Republicans are adamant about reforming what they call Washington's profligate spending culture. One of their targets is the SEC. The House budget bill would lop off $25 million of the current SEC budget and $189 million out of Mr. Obama's fiscal 2011 proposal for the agency.

Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Committee's Capital Markets Subcommittee, said the SEC does not deserve a budget boost in light of poor recent performance, including failing to stop Bernard Madoff before he bilked investors out of billions of dollars.

“What is Washington's response? "Let's give them more money,'” Mr. Garrett said in House floor debate Thursday. “Now is not the time to say, "Let's throw out more money to them.'”

The developing stalemate won't stop the SEC from adopting Dodd-Frank regulations — but it could make it difficult for the agency to enforce them, according to SEC Chairman Mary Schapiro.

“The real crunch comes after the rules are in place and we have to operationalize them,” she said at a Senate Banking Committee hearing last week. “We lack the resources to do that.”

The fiscal year 2011 budget that Congress failed to pass in early October would have given the SEC an 18% increase in funding, as authorized under Dodd-Frank. Instead, Congress approved the continuing resolution that is still in place, forcing the SEC and other federal agencies to operate at their current budget levels.

Last week, Mr. Obama introduced his fiscal year 2012 budget, which would add $300 million to the SEC's current funding levels. But Republicans dismissed it as contributing to the deficit.

“It looks an awful lot like a game of chicken,” said Barbara Roper, director of investor protection at the Consumer Federation of America. “It's difficult to see how the endgame on all of this works out.”

“The next two weeks will decide the SEC's fate,” said Stephen Crimmins, a former deputy chief litigation counsel in the SEC's Division of Enforcement.”It's too soon to tell what will happen. We're trying to have a conversation with folks on both sides of the aisle.”

In his 2012 budget, Mr. Obama expressed his support for following through on Dodd-Frank. Getting the funding to do that is another matter.

The administration is “putting its money behind the Dodd-Frank Act and the increased regulatory responsibility the SEC has to bear,” said David Tittsworth, executive director of the Investment Adviser Association. “There's going to be a potential train wreck between the administration and the House Republicans.”

Ms. Schapiro said that the budget shortfall already has forced the SEC to cut back hiring and travel, and delayed updating technology required to keep pace with increasingly complex and deep markets. It all adds up, she said, to less investor protection.

“We are making some difficult choices,” Ms. Schapiro said. “That's having an impact on our ability to fulfill our core mission.”

Although its budget is in limbo, the SEC has to make resource allocation decisions that could have an impact on investment advisers. For instance, the SEC might forgo risk-based exams and instead advance securities litigation cases.

“It is harder to move the trial schedule than it is to move the exam,” said R. Daniel O'Connor, a partner at Ropes & Gray LLP. “There will likely be some slowdown in the exam process.”

Mr. Crimmins and a group of securities lawyers are convinced that the battle over the SEC budget is a diversion.

In a letter to Congress, the group emphasized that cutting the SEC's budget would have no impact on the federal deficit. The SEC pays for its own operations through registration and filing fees charged to firms that it regulates.

“The SEC should not be part of the [congressional] appropriations process, because it uses not a dime of taxpayer money,” Mr. Crimmins said.

Ultimately, he would like to see Congress authorize the SEC to set its own budget levels, as do other banking regulators, such as the Federal Deposit Insurance Corp. A provision that would have done that was scuttled during House-Senate talks last summer on the Dodd-Frank bill.

“What is at issue here is America's prosperity and the vibrancy of its capital markets,” Mr. Crimmins said.

E-mail Mark Schoeff Jr. at


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Get creative: How to boost your message to prospects

Communicating with prospects can be difficult. What are some creative ways that you can enhance your messaging? Bob Huntley of Wise Counsel Wealth Management offers some ideas.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

How adviser salaries stack up to other jobs

Median compensation hovers just under $100,000 on the low end and reaches nearly $300,000 for bosses.

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.

Advice firms in a tricky financial position

As revenue growth dips and salaries rise, nearly 90% of firms are at or near capacity.

In a turnaround, Wells Fargo Advisors sees slight bump in headcount

Racked by a scandal in its retail banking unit, Wells still managed to add 37 new advisers in the third quarter, a small number but an improvement nonetheless.

Social Security benefits to increase by 2% in 2018

Largest cost-of-living adjustment since 2012 may be offset for some by higher Medicare premiums.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print