White: SEC's No. 1 priority is more adviser examinations

Chairman says agency is neutral on how to fund exam expansion

May 16, 2013 @ 3:46 pm

By Mark Schoeff Jr.

mary jo white, SEC, adviser exams, SRO, maxine waters, hensarling
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SEC's White: We need more adviser exams.

The Securities and Exchange Commission's top priority is to increase the number of investment adviser examinations it handles every year. How to go about doing that is another question.

“Significant additional coverage is essential if investors are to be appropriately protected,” SEC Chairman Mary Jo White told lawmakers today, pointing out that in fiscal 2012, the agency examined only 8% of registered investment advisers, who now number about 11,000.

After the hearing at the House Financial Services Committee, Ms. White told reporters that the SEC is agnostic about outsourcing adviser regulation to an industry-funded self-regulatory organization.

“What needs to happen is, there needs to be more examination coverage of investment advisers,” Ms. White said, reiterating her main point to lawmakers. “The SEC's not taken a position on whether that should be through an SRO or additional funding for the SEC. I don't have a conclusion on that today.”

The SEC is seeking a $1.674 billion budget appropriation from Congress, a 27% increase from the previous fiscal year. It would use part of the funding boost to hire an additional 250 investment-adviser examiners.

An SEC study in 2011 concluded that the agency lacked the resources to examine the registered advisers it oversees, about 40% of whom have never been visited by the SEC.

One of the study's recommended solutions was for Congress to authorize an SRO for advisers. Another recommendation was for legislators to allow the SEC to charge user fees to advisers to fund exams.

An SRO bill was introduced last year by Rep. Spencer Bachus, R-Ala., who was then chairman of the House Financial Services Committee. The measure died without a vote by the panel.

He has not pursued SRO legislation this year but Rep. Maxine Water, D-Calif., and ranking member of the committee, re-introduced her SEC user-fee bill last month.

At today's hearing, Mr. Bachus, who is still a member of the committee, called on his colleagues to support a bigger SEC budget, citing, in part, the need for more adviser oversight.

“It would be pennywise and pound-foolish for there not to be some bipartisan agreement for a [SEC] funding increase,” Mr. Bachus said.

He urged Ms. White to use the good will she has on Capitol Hill — she was unanimously confirmed by the Senate last month — to work for the budget boost. At the House hearing, committee chairman Jeb Hensarling, R-Texas, said that Ms. White offered a “fresh start” for the SEC.

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