More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
The House Appropriations Committee approved Wednesday a bill to give the Securities and Exchange Commission $1.4 billion in fiscal 2015 — $50 million more than the agency’s fiscal 2014 enacted level but $300 million less than the amount requested by President Barack Obama.
The SEC budget boost under the FY 2015 Financial Services and General Government Appropriations bill is “targeted specifically toward critical information technology initiatives” for the agency.
Rep. Jose Serrano, D-N.Y., tried to insert an amendment into the bill during the Wednesday markup to give the SEC the Obama administration’s funding request of $350 million, the same amount approved by voice vote by the Senate Subcommittee on Financial and General Government on Tuesday, arguing the agency would be “severely underfunded” at $1.4 billion.
Serrano argued during the markup that if Congress “keeps asking the SEC to do more with less, then we should not be surprised if we experience another financial crisis.”
But Serrano’s amendment was defeated by a 22-28 vote.
Indeed, Rep. Nita Lowey, D-N.Y., argued that not “adequately funding” the SEC could put “mom-and-pop investors and our entire economy at risk.” She went on to note the fact that the SEC only examined 9% of investment advisors last year, and that the number of advisors continues to climb.
SEC Chairwoman Mary Jo White told lawmakers in late April that the SEC’s 2015 budget request of $1.7 billion “would permit the SEC to increase its examination coverage” for advisors. The $1.7 billion budget would allow the agency to add 316 staffers to the agency’s Office of Compliance Inspections and Examinations, with 240 of those examiners devoted solely to overseeing advisors.
But Ander Crenshaw, R-Fla., chairman of the financial services and general government subcommittee, said during the Wednesday markup that “we are not starving the SEC for funds” with a $1.4 billion budget.
“Since 2001, we have increase the SEC’s funding level by more than 200%,” he said. “What did investors get?”
Crenshaw then went on to cite what he considered failures by the commission, such as missing the Bernie Madoff Ponzi scheme, “trouble in producing accurate financial statements,” the agency failing to deal with its “siloed structure,” as well as court cases that have been “thrown out” due to a lack of economic analysis by the agency.
The full Senate Appropriations Committee has yet to schedule a vote on its SEC budget allocation. But Neil Simon, VP of government relations for the Investment Adviser Association, told ThinkAdvisor that the House Appropriations budget will "likely" be the one the SEC gets.
Check out Advisory Industry Wants More Exams (and Will Pay for Them, Too) on ThinkAdvisor.