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August 10, 2009 at 08:00 PM
Of the many complex regulatory questions being discussed in Washington, how to fund the SEC seems to fall lower on the priority list than many other issues. But should it? Other agencies and regulatory organizations are self-funded, including the FDIC, the Federal Reserve and the broker/dealer self-regulatory organization FINRA. In an environment in which a stronger SEC is necessary, the drawbacks to being funded by Congress instead of self-funded may become clearer.
First, the numbers: As SEC Commissioner Luis A. Aguilar mentioned in a June 29 meeting with The Committee for the Fiduciary Standard, (this editor is a member of that Committee) the Commission has about 3,600 staffers who oversee 12,000 public companies, 11,300 investment advisors, 5500 broker/dealers 600 transfer agents, 5,000 mutual funds managing $9 trillion, 10 self-regulatory organizations, the stock exchanges, the Municipal Securities Rulemaking Board (MSRB) and the Public Company Accounting Oversight Board (PCAOB).
Although the SEC is funded out of the transfer and registration fees from stock trades, and in recent years those fees have generated between $1.2 billion and $1.4 billion per year, the fees go right to the Treasury, not directly to the Commission. The SEC then has to go to Congress with an annual budget for its allotment. What’s wrong with this picture? For the past four years, the SEC’s Congressional allotment has hovered at about $900 million, leaving between $300 million and $500 million of the fees it earns outside of SEC hands.
But with re-regulation fever sweeping Washington and the debate over who will regulate investment advisors and broker/dealers if they all come under one umbrella, the question of whether the SEC should be self-funding seems to be bubbling up to the top of the priority list. Investment advisors who fear that FINRA could be called upon to regulate all who give financial advice may want to consider which entity they’d prefer regulating all advice givers–both brokers and investment advisors–SEC or FINRA. If it’s SEC that’s preferred, then a self-funding SEC may indeed be necessary.
Another reason self-funding could be considered a positive step for the SEC, is that as Commissioner Aguilar pointed out the SEC cannot do multi-year planning and budgeting if it has to go to Congress on a year-by-year basis for its funding.
