Members of a House Financial Services Committee panel on Thursday warned that the Securities and Exchange Commission’s proposed rules would require thousands of individuals, including some engineers and lawyers, to register as municipal advisers. That is not what Congress intended, they said.
At a hearing of the committee’s capital markets panel, lawmakers urged SEC officials to more narrowly craft the rules, which were mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Meanwhile, SEC chairman Mary Schapiro, at a hearing held by the Senate Banking Committee securities panel, said the commission wants to hire 35 employees to implement the act’s muni provisions. The employees are needed to build a new Office of Municipal Securities and to examine newly registered muni advisers.
But Schapiro said the SEC would not be able to implement these and other Dodd-Frank provisions, and would have to furlough employees and curtail technology investments, under the fiscal 2011 continuing resolution proposed by House Republicans.
That proposed CR would provide the SEC with only $1.095 billion, a 2% decrease from its fiscal 2010 budget of $1.12 billion, and a much lower level than the $1.43 billion requested by President Obama for fiscal 2012.
During the House subcommittee discussion of muni advisers, Rep. Nan Hayworth, R-N.Y., expressed dismay that while SEC officials had told panel members last May that the new registration system would apply to only about 260 advisers, the proposed rules would apply to thousands.
“How do we keep things fair and reasonable, rational?” Hayworth asked. “It would seem that drawing the rules so broadly” will raise commission costs and prevent state and local governments from being effective.
Robert Cook, director of the SEC’s division of trading and markets, said the earlier figure was based on the existing number of independent advisers, but the Dodd-Frank definition of advisers is broader and covers more individuals. He said the SEC has received many comment letters on this issue, adding: “We’re going to be looking at them very carefully.”
Rep. David Schweikert, R-Ariz., the panel’s vice chairman, worried that under the SEC’s proposed rules, banks holding cash deposits for issuers could be considered municipal advisers.
“That’s an issue we’re focusing on and talking to other regulators about,” Cook said, indicating this may be an example of regulatory overlap and overreaching.
“I have a real concern,” Schweikert said. “How do you guys write rules that are effective and work but also don’t blow up your budget?”
Republicans on the House subcommittee complained that the SEC’s budget is too high and should be cut.
Panel chairman Scott Garrett, R-N.J., said “the SEC is an over-lawyered, over-bureaucratic agency” that is not effective. He said it’s a mistake to say the SEC is underfunded because its funding has increased an average of 10.8% per year over the past decade compared to an average annual increase of 2.5% in the inflation rate.
But Maxine Waters of California, the top Democrat on the panel, said it’s wrong to compare SEC funding to the inflation rate. She said SEC staffing is just now returning to the level it was in fiscal 2005 and that over the past decade, trading volume has more than doubled and investment advisers have grown over 50%.
Sen. Mike Crapo, R-Idaho, who sits on the Senate banking panel, said Dodd-Frank was a “mistake” and rulemaking under the new law should be slowed down.
Senate Banking panel chairman Jack Reed, D-R.I., disagreed with the idea that the SEC is underfunded, saying, “De-funding the SEC is really just a means to repeal Dodd-Frank.”
“The SEC is the cop that patrols and safeguards our markets,” he said. “No one would consider withholding resources from our nation’s police, stripping them of the personnel and equipment they need to keep our homes and communities safe, but that is essentially what has happened to the SEC over the past several years.”
Also on Thursday, 12 senators — 11 Democrats and one independent — sent a letter to Senate Appropriations Committee leaders urging them to fully fund the SEC and Commodity Futures Trading Commission at the fiscal 2012 levels requested by Obama.
