House passes SEC budget with amendment preventing fiduciary efforts

Appropriation of $1.4B also falls short of regulator's request to strengthen oversight; separate bill to cover exam costs gains bipartisan support

Jul 16, 2014 @ 12:04 pm

By Mark Schoeff Jr.

House, SEC, Senate, budget, adviser oversight, Rep. Maxine Waters
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The House of Representatives on Wednesday approved a spending bill that denies the Securities and Exchange Commission the funding it says it needs to strengthen investment adviser oversight, and contains an amendment that would prohibit the SEC from spending money to develop a rule to raise investment-advice standards for brokers.

The Dodd-Frank financial reform law gave the SEC the authority to impose a uniform fiduciary standard on anyone providing retail investment advice. While efforts on fiduciary duty have stalled over the last few years, the amendment, written by Rep. James Lankford, R-Okla., and approved by a voice vote, would hamper potential future action.

It's unclear whether Mr. Lankford's amendment will survive.

“At the very least, it has symbolic importance because it's uncertain whether an appropriations bill will be adopted by Congress,” said Neil Simon, vice president of government relations at the Investment Adviser Association. “Even if there is an appropriation, there's uncertainty about whether the Senate will go along with the provision.”

The appropriations bill, passing on a 228-195 vote, gives the SEC a $50 million budget increase, about $300 million less than the agency requested. Under the bill, the SEC would operate on a $1.4 billion budget in fiscal 2015, which begins on Oct. 1.

Thursday, just one day after passage of the spending bill, separate legislation that would allow the SEC to charge advisers user fees to finance increased exams gained bipartisan support.

The SEC has said one of its priorities for the funding increase was to hire about 240 more investment adviser examiners. The SEC maintains that it has the resources to examine only about 9% of the approximately 11,000 registered investment advisers annually.

A bill written by Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, is designed to help the SEC increase its coverage of investment advisers by charging them user fees for examinations. The measure gained its first Republican co-sponsor on Thursday, Rep. Spencer Bachus, R-Ala.

A former chairman of the House Financial Services Committee, Mr. Bachus introduced a bill in 2012 that would have established one or more self-regulatory organizations to oversee investment advisers. Industry organizations strongly opposed the bill, saying it would raise regulatory costs and burdens for advisers and would allow the Financial Industry Regulatory Authority Inc., the broker-dealer regulator, to expand its reach to advisers. It died without a committee vote.

Mr. Bachus' support of the user-fee bill was hailed as a breakthrough.

“We're hopeful this will open the door to further bipartisan support for this important piece of legislation,” Mr. Simon said.

Each co-sponsor of the bill — 19 Democrats and one Republican — is a member of the House Financial Services Committee. Last week, Ms. Waters called on the panel's chairman, Rep. Jeb Hensarling, R-Tex., to schedule a hearing for the legislation.

Mr. Hensarling dismissed Ms. Waters' entreaty in a brief exchange with reporters on Wednesday.

“I intend to give the request the attention it deserves,” Mr. Hensarling said on the sidelines of a conference in Washington co-sponsored by the Cato Institute and the Mercatus Center at George Mason University, his tone and body language suggesting he had no intention of calling a hearing.

SEC Chairman Mary Jo White warned that the spending bill passed Wednesday would undermine the agency's efforts to patrol financial markets.

“I have deep concerns that the level of funding under the House Appropriations bill will harm America's investors by forcing the agency to limit its enforcement, examination and regulatory activities precisely at a time that the SEC should be building additional expertise and developing new technologies to better oversee our rapidly changing markets,” Ms. White said in a statement.

She also pointed out that the SEC's budget does not affect the federal deficit. The SEC finances its activities through fees charged for securities transactions. Congress sets the level of spending for the agency.

The White House threatened to veto the bill.

The Democratic-majority Senate is likely to provide the SEC its full funding request. Ever since Republicans took over the House in 2011, however, the final SEC spending approval each fiscal year has been set at House rather than Senate levels.


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