Editorial

SEC must step up, whatever its funding

Jan 19, 2014 @ 12:01 am

The Securities and Exchange Commission was dealt a significant blow last week when the House and Senate approved a $1.1 trillion spending agreement that will fund the regulator at $1.35 billion, which is

$324 million less than its 2014 budget request.

The bipartisan agreement, which will keep the federal government's lights on through September, also cut to $25 million, from $50 million, a special reserve fund upon which the agency draws to pay for improvements in information technology.

As pleased as we are to see Democrats and Republicans reaching consensus on anything, underfunding the SEC at a time when the commission is in dire need of additional resources to finish and enforce the Dodd-Frank financial reforms is penny-wise and pound-foolish. 

That said, the SEC must not use Congress' penny-pinching and shortsightedness as an excuse to renege on its promise two weeks ago to step up adviser examinations in fiscal year 2014 and beyond. As first reported last week at InvestmentNews.com, the SEC intends to accomplish that goal by streamlining its examination for a group of about 1,000 advisers who have been registered for three years or more but never audited.

OVERSIGHT

Investment advi-ser oversight in the U.S. is sorely lacking, and the financial security of millions of Americans is put in harm's way because of it. In its fiscal year 2014 budget request, the SEC said that it examined only about 8% of the 11,000 registered advisers in FY 2012 and that 40% of advisers have never been examined.

Simply put: The low number of adviser examinations by the SEC is unacceptable. 

While we are heartened that the agency plans to step up examinations, the timing of that announcement (a week before Congress was set to begin budget deliberations) is cause for concern. 

One has to ask: Is the agency really serious about bolstering adviser exams? Or was the agency simply engaging in political gamesmanship and hoping to convince lawmakers to be more generous in their funding by demonstrating that it is taking widespread criticism about its lack of focus on advisers?

We hope the former.

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