Securities and Exchange Commission chairman Mary Schapiro told lawmakers Tuesday that the agency needs to hire 800 people to implement provisions in the financial regulatory reform legislation that President Obama is expected to sign into law today.
The hearing by the House Financial Services Committee’s capital markets panel focused primarily on whether the SEC is up to the challenge of adopting roughly 95 rulemakings, conducting 20 studies and establishing a half-dozen new offices, including one for municipal securities, as required by the new law.
Though Schapiro described the implementation of the bill’s provisions as “logistically challenging and extremely labor intensive,” she said she and the commission are up to the challenge, drawing general support from Democrats and skepticism from Republicans.
Separately, Schapiro highlighted the agency’s revitalized enforcement division and told reporters after the hearing that the SEC has “a number of cases coming out of the financial crisis” tied to mortgage-related derivatives and other products sold by financial firms.
“We have investigations in the pipeline across products, across institutions coming out of the financial crisis,” she said. “We’ve brought a number of them. Nobody ever wants to pay attention to the ones we’ve already brought. But we’ve brought quite a few already coming out of crisis over the last year and a half.”
Asked if the bulk of the cases from the financial crisis have come to light, she said: “Not necessarily.”
Her comments come almost a week after the SEC reached a $550 million settlement with Goldman, Sachs & Co., in which the firm agreed its marketing documents for a subprime-related financial product contained incomplete information.
On the new law, Schapiro told panel members, “The importance and complexity of the rules, coupled both with their timing and high volume and the rule-writing agenda currently pending, will make the upcoming rule-writing process both logistically challenging and extremely labor-intensive.”
But she added that she is “quite humbled” by the challenge, which comes on top of an already packed agenda.
She pledged repeatedly that the commission is moving “expeditiously” to implement the provisions. She also said the SEC will do its best to ensure a “robust” comment period for each of its proposals.
Pressed on the issue by Rep. Jeb Hensarling, R-Tex., Schapiro said that a team has been assigned to draft schedules based on a spreadsheet of the 95-odd rulemakings that the commission must conduct and that it is meeting with her once a week.
Rep. Scott Garrett, R-N.J., said the timetable for finalizing the 95 rules the SEC must adopt is “not appropriate and will cause the SEC to move too quickly on items that should be considered in a responsible, thoughtful manner, never mind whether some of the rules called for should be considered at all.”
He said his concerns are magnified because some of the rules, especially in the area of derivatives, must be written jointly with the Commodity Futures Trading Commission.
Democrats were significantly more supportive of the agency than Republicans, though Rep. Brad Sherman of California pushed Schapiro to ensure the rating agency rules it adopts on uniform ratings are fair to municipal issuers.
Sherman said he is concerned that rating agencies continue to rate municipal issuers on a separate scale from corporate borrowers even though municipal debt has a lower likelihood of defaulting. He also noted that municipalities do not go out of business when they default.
Sherman was referring to a “universal ratings symbols” section of the bill. The section requires the SEC to adopt rules requiring rating agencies designated as a nationally recognized statistical rating organizations, or NRSROs, to adopt and enforce policies that “assess” the probability that an issuer will default, fail to make timely payments, or otherwise not make payments to investors in accordance with the terms of a security.
While the rules also would require NRSROs to apply rating symbols in a consistent manner for all types of securities, issuers have complained that there is no requirement that the symbols reflect the NRSROs’ default assessments.
Moody’s Investors Service and Fitch Ratings completed a migration to a uniform scale earlier this year, while Standard & Poor’s has long maintained that it uses a uniform scale across all major credit sectors.