Securities and Exchange Commission chairman Mary Jo White told lawmakers on a House panel Thursday that unfinished regulations mandated by the Dodd-Frank Act are at the top of her priorities, and that the SEC needs tough enforcement penalties to maintain order over an increasingly complex market landscape.
White told the full House Financial Services Committee that the SEC has a number of congressional mandates stemming from Dodd-Frank and from the Jumpstart Our Business Startups, or JOBS Act. She repeatedly declined to prioritize any particular rule over another, and the efforts on the agency’s various goals as running “parallel” to each other.
Those rules include the SEC’s efforts to finalize its definition of municipal advisor. Dodd-Frank subjects muni advisors to SEC and Municipal Securities Rulemaking Board registration as well as to MSRB rules. But the SEC has spent almost three years trying to specify who qualifies as a muni advisor and the MSRB has been waiting for that definition to proceed with new rules and rule changes for MAs.
“The highest immediate priority project for [Office of Municipal Securities] is to finalize permanent rules for the registration of municipal advisors with the SEC pursuant to Section 975 of the Dodd-Frank Act,” White wrote in her testimony. “In December 2010, the Commission proposed permanent rules for municipal advisor registration. The SEC received over 1,000 comment letters on the proposal. Many expressed concern that the proposed rules were overbroad, including well-publicized concerns about their potential impact on appointed board members of municipal entities, municipal investments unrelated to municipal securities, and traditional banking products and services. The staff is developing a recommendation for final rules that we anticipate will address these concerns.”
When Rep. Gwen Moore, D-Wis., asked White about the MA definition and other Dodd-Frank rules, the SEC chair mentioned practically all of them except the muni advisor definition.
White also said the SEC needs to get tougher on enforcement. She has a reputation as a tough prosecutor stemming from her time as U.S. Attorney for the Southern District of New York in Manhattan, and some market participants view the SEC’s recent action against Harrisburg, Pa., as a signal that White means for the SEC to be more aggressive during her tenure. Others, however, are complaining the commission’s sanctions were not tough enough and that it should have gone after former city officials.
The SEC settled securities fraud charges with the city for making misleading statements about its deteriorating finances.
“A vigorous enforcement program is at the heart of the SEC’s efforts to protect investors and promote the integrity of the marketplace,” White told the committee. “Successful enforcement actions result in sanctions that deter wrongdoing, protect investors, and result in penalties and the disgorgement of ill-gotten gains that can be returned to harmed investors,” she said. “Enforcement’s recent actions reflect and aggressive and continued pursuit of institutions and individuals whose actions contributed to the financial crisis, a focus on exchanges and market structure issues aimed at ensuring a fair securities marketplace, pursuit of investment advisers for fraudulent conduct, and continued efforts to combat insider trading by those who abuse positions of trust and confidence for personal gain.”
White told committee member Rep. Carolyn Maloney, D-N.Y., that the SEC needs authority to impose tougher penalties on those who abuse the securities laws.
White also expressed reservations about legislation scheduled to be voted on by House members Friday that would require the SEC to perform a formal cost-benefit analysis of all new regulations, as well as reviews of all of its rules within a year and at least every five years after that to see if they are outmoded or overly burdensome.
White suggested that the SEC Regulatory Accountability Act of 2013, offered by Rep. Scott Garrett, R-N.J., would create an unnecessary burden on the SEC.
“I do have concerns about this bill, White said, adding that while she “believe[s] in the importance of robust economic analysis,” she is concerned the bill could further delay the SEC’s rulemaking processes and create uncertainty for market participants.
“I think it would end up hampering us,” she said.
While Republicans said they were concerned about the potential for the SEC to be misused the way the Internal Revenue Service was found to have targeted right-wing groups with unreasonable audits, Democrats said they were concerned Garrett’s bill could create “unreasonable conditions” for the regulatory agency.
“I’m very worried,” said Rep. Maxine, Waters from California, the committee’s ranking Democrat. “This is unreasonable.”
Some Republicans also expressed skepticism at the SEC’s budget request, which asks for $1.67 billion for the 2014 fiscal year, a 26% over the current level.
White said that the new responsibilities foisted on the SEC by Dodd-Frank and the JOBS Act require a well-funded agency.
“If we don’t get that, we can’t do our jobs,” she told Rep. Al Green, D-Tex.
“If enacted, this request would permit us to add approximately 676 new staff positions, which are needed today both to improve core operations and implement the agency’s new responsibilities,” White wrote in her testimony.
She said that the cost would be fully offset by matching collections of fees on securities transactions.
“We very much need, what the president has asked for,” she said.
