WASHINGTON – Securities and Exchange Commission chair Mary Jo White on Tuesday said the numerous violations the commission's municipal continuing disclosure enforcement initiative uncovered may mean the SEC needs direct regulatory authority over issuers.
She made her comments in response to a question from Rep. Gwen Moore, D-Wis., during a House Financial Services Committee hearing to discuss the SEC's $2.227 billion budget request for fiscal year 2018.
"I would not conclude that [the findings] obviate the need for greater authority for the SEC," White said. She added that staff is continuing to look at the municipal market and that the SEC may "speak further on" the need for such changes in the future.
Moore asked her question in the context of the SEC's Municipalities Continuing Disclosure Cooperation initiative, which White said was "enormously effective," as well as its 2012 report on the municipal market.
MCDC promised underwriters and issuers would receive lenient settlement terms if they self-reported instances over the last five years where issuers falsely stated in offering documents that they were in compliance with their continuing disclosure agreements. The initiative has led to settlements with 71 issuers to date, as well as 72 underwriters. The SEC has not said whether there will be more settlements in the future.
The 2012 report, which made a number of regulatory and legislative recommendations for improving the muni market, suggested Congress give SEC authority to establish disclosure requirements related to principles, timeframes, and frequency of dissemination of muni offerings and continuing disclosure for issuers. The report said that such a change "would not entail any repeal or modification to the existing proscriptions on the SEC" or Municipal Securities Rulemaking Board fund under the Tower Amendment. It also noted that those who compiled the report "identified a number of areas in which the limited commission authority over municipal issuers has affected its ability to improve disclosures and practices in the municipal securities market."
Municipal market groups have been engaged in a joint effort since October 2015 to come up with ways to improve continuing disclosure without the need for SEC intervention. The Government Finance Officers Association said around the time when the groups started meeting that its members were afraid that without such work, they could be made subject to direct regulation.
White, who announced on Monday that she would step down as chair when President Obama's term ends, also fielded questions tied more closely to the SEC's most recent budget request to the Financial Services Committee. The request is an increase from the roughly $1.6 billion the commission is allocated under Congress' current continuing resolution, which is set to expire on Dec. 9.
Committee chair Rep. Jeb Hensarling, R-Tex., criticized a portion of the request that includes $291 million for the SEC to relocate to a new facility. Hensarling called the amount "a pre-funded escrow account" and said he sees no need for it. He added that the SEC's past claims that it is underfunded "are not supported by the facts," noting that the commission's budget has increased "by a whopping 325% since the year 2000."
However, White insisted the SEC is underfunded and said the lack of resources has been the biggest challenge she has had to face as chair. She said the SEC's responsibilities have grown in recent years and urged the committee members to look at the growing complexity and extensiveness of the commission's responsibilities.
Hensarling and other Republicans also urged White to resist the temptation to rush pending rulemakings to completion before the Obama administration ends.
"As there are currently two vacancies at the commission, absent an emergency and given your current reputation and legacy, I would strongly urge you to respect the results of last week's election and resist the temptation to finalize any regulations … in deference to the right of the incoming administration to set its own priorities upon taking office in January," Hensarling said.
President-elect Donald Trump and his transition team have said they have plans to dismantle the Dodd-Frank Act and roll back regulations in the financial market. The new administration's ability to now name the chairman and two of the four other commissioners to the SEC means it will have significant power to influence the future financial regulatory agenda.
White assured Republicans on the committee that she does not see "any last minute rushes" before January and plans to stick to her year-long agenda announced last February. She also offered a defense of Dodd-Frank in response to a question about what regulatory rollback could mean for financial markets.
"I think we are much stronger and more resilient than we were before the various reforms in Dodd-Frank," she said. "I would certainly not want to see those rescinded or repealed."
