Walter says SEC request for more examiners not enough

OK with bigger budget, fees or SRO but says oversight 'problem' needs to be fixed

Apr 17, 2013 @ 1:26 pm

By Mark Schoeff Jr.

Even if the Securities and Exchange Commission were to receive the more than $350 million boost to its budget that it is seeking from Congress, it would not be enough to solve the agency's shortfall in investment adviser oversight, according to an SEC commissioner.

Part of the funding request would be devoted to hiring an additional 250 examiners to review investment advisers, a move that the SEC contends is critical to addressing an investor protection weakness.

But SEC member Elisse Walter told state regulators yesterday that the agency still would lack the resources to boost investment adviser oversight substantially.

“There are simply not enough examiners to go around,” Ms. Walter said at a North American Securities Administrators Association conference in Washington.

Currently, the agency examines about 8% of the approximately 10,754 registered advisers annually. With the increase called for in the budget, adviser exam coverage would rise 14% in fiscal year 2014 and 16% in the next fiscal year.

The transfer of about 2,240 midsize advisers — with assets under management of less than $100 million — from SEC to the states has not given the SEC more capacity to oversee advisers who have remained with the agency, Ms. Walter said.

Even as some advisers have left the SEC, the agency has taken on about 1,400 newly registered private fund advisers, who now make up about 37% of SEC-registered advisers. The complexity of their funds has boosted the AUM of registered advisers to $49.6 trillion.

The shift of midsize advisers and the addition of private fund advisers was mandated by the Dodd-Frank financial reform bill.

Adviser regulation “challenges have been maximized by our new private-fund oversight responsibilities,” Ms. Walter said.

In her speech, Ms. Walter did not mention her longtime support of a self-regulatory organization to oversee advisers. In a meeting with reporters afterward, she said she still prefers an SRO.

But she added that she would be open to increasing the SEC's budget or allowing it to charge advisers user fees for exams. Each of the three steps would require congressional approval.

“I'd be happy if we get a bigger budget to cover this, if we get user fees or if we go get an SRO,” Ms. Walter said. “The fact that I have a preferred solution doesn't really matter. It's a problem that needs to be fixed — and sooner rather than later. To me, this is the most pointed deficiency we have in our resources.”

She acknowledged that the current budget request is just a start.

“That's nowhere near enough to get there,” Ms. Walter said. “But you can't do it all at once. It would take several years of budget increases to really do it.”

Although the agency consistently has received budget boosts from Congress, it never gets all the funding it seeks — a trend likely to continue this year.

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