OPINION Column: SEC Funding Needs to Change

Even doubling the SEC budget, as the House draft of financial reforms had proposed last spring would have helped, year-over-year, but not long term, if it continued to be a yearly Congressional appropriation. And that's not what ended up in the Dodd Frank Act.

Former SEC Chairman David Ruder told Wealth Manager in an email that, "The SEC still needs self funding. The problem is that its needs far surpass the funds made available be Congress. The Dodd Frank legislation provides for some limited funding for emergency and planning purposes, but fails to provide the ability for the agency to meet long term planning needs. The schedule for increasing SEC funding contained in the Dodd Frank legislation is good, but the appropriation process will still control the amounts the SEC will receive. Efforts to obtain self funding should continue, but there seems little likelihood of success in that endeavor in the near future."

For FY 2009, the SEC collected $1.016457 billion in fees, and Congress appropriated $970 million–a difference of more than $46 million, according to figures from SEC spokesman John Nester. But in FY 2010, the difference is much greater: SEC estimates it will collect $1.52 billion in fees, and Congress appropriated $1.111 billion a difference of $409 million. That missing money is an enormous impediment at a time when the SEC is under pressure to ferret out Ponzi schemers and other bad actors as well as implement numerous investor protection and other regulatory improvements.

Under the New Act

In the Dodd-Frank Act, SEC funding is scheduled to increase over the next five years. In FY 2011, the appropriation will be $1.3 billion, but the SEC estimates it will take in $1.74 billion, leaving $440 million on the Congressional cutting room floor. But more important, the SEC still cannot plan for multi-year projects.

SEC Chairman Mary L. Schapiro noted in her July 20 "Testimony Concerning Oversight of the U.S. Securities and Exchange Commission: Evaluating Present Reforms and Future Challenges," that: "The Dodd-Frank regulatory reform legislation contains a number of reforms to the SEC's funding structure. For example, the language links the SEC's appropriation with the fees the agency collects, so any increase or decrease in the agency's budget would be matched by a rise or fall in fee collections. The legislation also creates a Reserve Fund for the SEC, and requires the agency to submit its annual budget requests concurrently to the Administration and Congress. I believe this new overall structure will be tremendously helpful for the SEC: to cover emergency needs that arise in the middle of a fiscal year; to help pay for multi-year initiatives, particularly new systems; and to make sure our fees are properly aligned with our budget."

That said, if Congress expects the SEC to regulate as necessary, and to protect investors, then it may have to revisit the self-funding issue.

Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.