The SEC released its Dodd-Frank-mandated "Study on Enhancing Investment Adviser Examinations" late Wednesday, along with a very unusual statement, about the Study from SEC Commissioner Elisse B. Walter.
In what is most akin to a dissent opinion from a Member of the Supreme Court, Walter who is "quite disappointed," in the Study recommendations, has offered an additional voice from the SEC and insight into the defining paradox that the SEC finds itself in. It is being called upon to gear up to oversee and register many additional entities, and conduct many additional tasks, but the funding it receives has been cut from what was promised in Dodd-Frank. And this is political, not deficit-cutting.
Funding Cut From Authorized 2011 level
The SEC receives an annual appropriation from Congress that is a subset of the fees the SEC takes in and must hand over to the Treasury each year. In some years, the SEC receives hundreds of millions of dollars less in its appropriation from Congress than it takes in. Both Walter and Commissioner Luis A. Aguilar are on the record about the stranglehold lawmakers have on the agency when it comes to the funding issue. Other agencies such as the FDIC, etc., are "self-funded," meaning they keep the fees they take in from those they oversee. Not the SEC.
What makes the yearly congressional appropriation issue worse is that the SEC cannot make multiyear budget plans—for instance to upgrade technology or hire more examiners—if it doesn't know what its funding will be from year to year. "The fact that the Commission is not currently receiving the funding previously authorized in the budget is having very significant consequences for the Commission overall and for OCIE," says Walter (left) in her statement.
What's more—if the SEC were allowed to be "self-funded" this would not add a penny to the U.S. deficit or budget; the SEC already makes much more in fees than gets in its annual appropriation. What the annual congressional appropriation does is allow for Congress to starve the SEC of resources, allowing the flow of funding to be a proxy for the amount of regulation that the agency is able to perform. So the SEC becomes victim to whatever way political sentiment blows.
Action Required
While Dodd-Frank requires numerous implementations for the SEC: studies, rulemakings, reports — according to a SIFMA estimate, 124 "actions" as a result of Dodd-Frank—the millions of dollars in funding promised in that legislation to help the SEC conduct these actions has been withdrawn, as has the 2011 budget appropriation. The SEC is back to its 2010-level funding, at least through March, Walter notes.
