Bachus wants to restructure SEC

Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee, wants to overhaul the Securities and Exchange Commission. Mr. Bachus said Tuesday that he will introduce a bill to consolidate SEC offices and institute managerial and ethics reforms, according to a statement released by his office. In several Capitol Hill appearances this year, SEC officials have argued that the agency requires significantly more funding to address its core investor protection and market-monitoring functions, while also implementing the Dodd-Frank financial reform law. The House Appropriations Committee approved a bill in June that would freeze SEC funding at its fiscal 2011 level of $1.18 billion. “Simply providing yet more funding to the SEC without first correcting its flaws will do nothing but prolong these inefficiencies and structural failures,” Mr. Bachus said. “Without fundamental reform, there will never be any real improvement to the SEC's operations.” It is not clear when Mr. Bachus will introduce his SEC reform bill, which he will call the SEC Modernization Act. It would fold the Office of Compliance, Inspections and Examinations into the Division of Trading and Markets and the Division of Investment Management. It also would consolidate the Division of Risk, Strategy and Innovation into the Divisions of Corporate Finance, Enforcement, Investment Management, and Trading and Markets. It also would combine the functions of the SEC executive director and chief operating officer, and would require the Office of Ethics Counsel to develop a system for documenting employee recusals. The bill also would establish an independent ombudsman. The SEC, however, argues that those changes should come from within rather than being imposed by legislation. “We are actively reviewing a number of similar recommendations from the Boston Consulting Group study to evaluate improvements in the structure, operations and processes of the agency,” SEC spokesman John Nester said in an e-mail. “By continuing to undertake reforms internally rather than legislatively, we can more readily adapt our structure to market dynamics as they evolve. Of course, in the past two years, the agency has undergone significant reform, including restructuring entire divisions, creating specialized units, eliminating a layer of management and putting qualified attorneys back on the enforcement front lines and ensuring greater intra-agency collaboration.” Fiduciary rule Also on Tuesday, Mr. Bachus sent a letter to the SEC, urging it not to move forward with a rule that would impose a universal fiduciary duty on anyone providing retail investment advice, a regulation that would force broker-dealers to meet a more stringent standard of care. Mr. Bachus reiterated what he and other Capitol Hill Republicans have been telling the agency for months — that it did not provide a cost-benefit justification for a fiduciary-duty rule in its January report to Congress. That study, mandated by Dodd-Frank, recommends a universal fiduciary duty to protect investors confused by the differing standards governing investment advisers and broker dealers. Dodd-Frank authorizes the SEC to promulgate a fiduciary-duty regulation. The agency said it will propose a rule this fall. But Mr. Bachus wants to tap the brakes on that effort, which he asserts will be carried out by SEC examiners who are reassigned to write optional Dodd-Frank rules. “While the SEC staff study mandated by Dodd-Frank Section 913 recommends the adoption of a new uniform fiduciary-duty standard and harmonization of two disparate regulatory regimes, the SEC has failed to answer the fundamental question of whether it is necessary or even appropriate to change the standards for broker-dealers,” Mr. Bachus wrote in a letter to SEC Chairman Mary Schapiro. “Any SEC action on standard of care matters is premature until the commission can demonstrate that investors are being harmed by the current regulatory standards and that harmonization would enhance investor protection.”