House poised to approve continuing resolution that freezes SEC budget

White says funding not enough to support expanded adviser exams

Sep 10, 2014 @ 12:17 pm

By Mark Schoeff Jr.

The House of Representatives is poised to vote on a budget that would keep the Securities and Exchange Commission funded at a level SEC Chairman Mary Jo White says is too low to increase oversight of investment advisers.

The House planned to vote on Thursday on a so-called continuing resolution, a $1.012 trillion measure that would prevent a government shutdown on Sept. 30, the end of its fiscal year, and keep federal programs and services running until Dec. 11.

That vote was postponed on Wednesday afternoon by House Majority Leader Kevin McCarthy, who said in a floor speech the bill would be amended to include authority for President Barack Obama to conduct operations against the Islamic State in Iraq and Syria. It’s not clear when the vote will be rescheduled.

During a lame duck session after the election in November, Congress would have to approve another continuing resolution or an appropriations bill to fund the government for the remainder of fiscal 2015.

The House bill would maintain the current SEC budget of about $1.35 billion. In prepared testimony before the Senate Banking Committee on Tuesday, Ms. White said the agency would need a “significant increase in resources” in order to hire additional staff. In its budget request, the SEC sought funding for an additional 240 investment-adviser examiners.

The total number of SEC-registered investment advisers was 11,405 as of last month, according to Ms. White, down slightly from 11,505 the previous fiscal year. The assets under management the SEC oversees has grown from $43.8 trillion in April 2011 to $62.3 trillion last month, as the SEC has taken on 4,322 additional private-fund advisers under a mandate of the Dodd-Frank financial reform law.

In fiscal 2013, the SEC examined 9% of registered advisers. In 2004, the agency had 19 examiners per trillion dollars in AUM, a number that has fallen to eight per trillion dollars in 2014, according to Ms. White.

“There is an immediate and pressing need for significant additional resources to permit the SEC to increase its examination coverage of registered investment advisers so as to better protect investors and our markets,” Ms. White said in her prepared remarks.

During her appearance before the Senate committee, she said the SEC has proposed or finalized nearly 90% of the approximately 100 required Dodd-Frank rules. But she emphasized that the agency's funding needs to be extended beyond writing the rules.

“Once these rules are finished, we have to implement and enforce them, and that takes resources,” Ms. White told lawmakers.

The Republican-majority House approved an appropriations bill over the summer that would increase the SEC budget by $50 million to $1.4 billion, a total that was $300 million less than the agency requested. The Democratic-led Senate has not acted on an SEC budget, but it is likely to come out much closer to the agency's request.

The SEC has struggled for years to obtain from Congress what it deems to be a critical budget increase. Its funding challenges have prompted legislation that would allow the agency to charge user fees for adviser exams and a call for an SEC rule that would establish third-party adviser exams.

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