WASHINGTON – The Securities and Exchange Commission’s $1.602 billion budget request for fiscal 2018, while lower than past requests, will still allow the commission to pursue its broader goals like protecting investors through enforcement as well as examining advisors and others for potential securities law violations, according to SEC chair Jay Clayton.
Clayton made his comments during a hearing in front of the Senate Appropriations Committee’s Subcommittee on Financial Services and General Government that was held on Tuesday to examine the SEC’s and Commodity Futures Trading Commission’s budget requests. While he did not specifically touch on munis, the SEC’s budget request has several muni-related sections.
Several senators at the hearing asked Clayton whether the budget request, which is about $3 million less than what the commission was allocated for fiscal year 2017, would leave enough resources for the SEC to continue its broad range of activities.
Clayton said that he is “comfortable” that the funding will be sufficient and added that while “taking a percent” from the request “would hurt,” he “wouldn’t know where to spend a whole lot more at this time.”
Clayton also held open the possibility that “there will be areas this time next year where I will want more funding that I didn’t know about today.” He has been in the role of chair for roughly six weeks and said he has worked with SEC staff since taking over to fully understand the commission’s operating needs.
During his opening testimony, Clayton ran through the main areas where the SEC’s funding will be allocated in fiscal year 2018, including protecting investors through enforcement and examinations, effectively managing the agency, facilitating capital formation, and leveraging technology.
More than half of the budget request is expected to go toward the SEC’s enforcement and examination programs, Clayton said. The programs would focus on retail investor fraud, investment professional misconduct, market manipulation, and accounting fraud, among other things. That funding will also help the SEC’s Office of Compliance, Inspections, and Examinations bolster its risk-based approach to exam selection using data analytics tools, Clayton said.
The commission would like to have 1,343 full-time equivalents (FTE) in fiscal year 2018 as part of its Division of Enforcement. A full-time equivalent estimate gives the number of full-time employees it would take to work the number of hours for which the SEC is budgeting.
The 1,343 FTEs would represent a decrease from the 1,380 FTEs in fiscal year 2016 and the 1,377 FTEs under the fiscal year 2017 congressional continuing resolution. There would also be a decrease to $507.4 million in total costs from the enforcement division under the fiscal year 2018 request compared to $528.9 million in fiscal year 2016.
The SEC is estimating that OCIE will conduct 80 municipal advisor examinations in fiscal year 2018 compared to an estimated 74 in fiscal year 2017 and the 67 that were done in 2016.
The SEC’s Office of Municipal Securities is expected to have nine FTEs in fiscal year 2018, according to the SEC, an increase from the 7 it had in fiscal year 2016. OMS would also see an increase in total costs to $2.9 million in 2018 from $2.5 million in fiscal 2016.
While most OMS activities are expected to remain relatively unchanged through 2018, according to the SEC’s budget request, the commission is envisioning some changes in the number of municipal advisor registrants as well as the amount of correspondence and inquiries it will be working through. The SEC expects the number of MA registrants to rise to 818 in 2018 from 743 in 2017. It is also expecting to have 700 pieces of correspondence or inquiries from Congress, governments, industry members, and the public.
OMS’ activity on rulemaking is likely to stay consistent, according to the estimates, but it is expected to work on two SEC rules or interpretive actions in 2018, whereas it will only work on one in 2017. It didn't work on any in 2016.