WASHINGTON – The Securities and Exchange Commission would increase its examination and enforcement staff if Congress passed President Obama's proposal to double its budget by fiscal year 2021, starting with a $200 million increase to $1.78 billion in 2017.
The proposed $1.78 billion figure would be an 11% increase from the roughly $1.58 billion Congress gave the SEC as part of the year-end omnibus bill for fiscal 2016. The SEC budget is deficit-neutral because its expenditures are offset with fees collected from the securities industry rather than with money appropriated by Congress. But Congress must still approve the budget.
The commission said the proposed budget increase would allow for an additional 250 staff members as well as further development to crucial technology systems.
Of the 250 new employees, 127 would go toward bolstering SEC examinations. The majority of the 127 would be added to examine investment advisors, following the commission's admission that in fiscal year 2015 it was only able to examine about 10% of registered IAs. Roughly 40% of registered IAs have still not been examined, according to the budget request. The commission's ultimate goal is to eventually examine each IA at least every two or three years.
The remaining amount of new examination staff would be delegated to other areas, including municipal advisors. The commission announced a two-year examination program for MAs in August 2014, under which the SEC's Office of Compliance Inspections and Examinations would examine non-dealer MAs and the Financial Industry Regulatory Authority would look at dealer-affiliated MAs.
The SEC also would like to add 52 enforcement personnel under the proposed increase funding level, including forensic accountants, trial attorneys, and industry experts to better detect, prioritize, and investigate areas of enforcement. Twelve of the positions would be for attorneys who could help with nationwide litigation for the commission, which has been on the rise because an increasing number of its enforcement actions are being contested.
Additional staff would be helpful in analyzing large data sets the commission has that include things like muni bond trading data and SEC filings, according to the budget request. The SEC would also like to add 10 people to further develop its data analysis capabilities so that it can improve the chances of catching misconduct earlier and limiting the harm done to investors.
The budget did not give a specific requested amount for the SEC's Office of Municipal Securities, but said the office's main focus in fiscal 2017 will be on municipal advisor rules. The office wants an additional attorney to support its "considerable responsibilities to implement the new regulatory regime for municipal advisors" forged by the Municipal Securities Rulemaking Board.
The MA rules, the implementation of which is overseen by OMS, include MSRB Rule G-20 on gifts and gratuities, which has an implementation date of May 6, and MSRB Rule G-42 on core standards for MAs, which will take effect in June. The MSRB has also filed proposed changes with the SEC that would extend to MAs its current Rule G-37, which is designed to prevent dealers from engaging in pay-to-play practices.
OMS also would continue to advise the SEC's OCIE as it examines non-dealer MAs, coordinate guidance and rulemaking with the MSRB and the FINRA, and provide interpretive guidance to market participants who may be required to register as MAs.
