This news article originally appeared on InvestmentAdvisor.com on 4/19/2010.
As the SEC leveled new charges against Goldman Sachs on April 16, alleging that Goldman engaged in fraud in building and selling collateralized debt obligations (CDOs) tied to subprime residential mortgages, SEC Chairman Mary Schapiro and Senator Chuck Schumer (D-New York) are making last-ditch efforts to urge the Senate to approve legislation that would provide a self-funding mechanism for the SEC. A spokesperson for Senator Christopher Dodd (D-Connecticut), chairman of the Senate Banking Committee, told Investment Advisor on April 19 that Dodd’s financial services reform bill could go to the full Senate floor for debate by the end of this week. During a press conference on April 15, Schapiro, Schumer, and five former SEC chairmen noted the urgency in allowing the SEC to fund itself by retaining the fees it collects.
In her statements at the press conference, Schapiro said that currently, “the SEC raises millions more dollars every year in registration and transaction fees than it is allocated through the appropriations process. But its budget is limited to the amount approved by Congress. In 2007, the SEC brought in $1.54 billion in fees, but secured just $881.6 million in funding from Congress. Had the agency simply been able to hold onto all the fees it collected, it would have represented a 75% increase over the budget it was allotted through the appropriations process.” Self-funding is particularly critical now, Schapiro said, given that financial reform will likely expand the SEC’s role to include oversight of hedge funds and some OTC derivatives.
Schapiro told Washington Bureau Chief Melanie Waddell in an early April interview how important it is the final financial services reform bill to include such self-funding mechanism, and also detailed her opinions on the current state of financial services reform, lessons the SEC has learned post Madoff, when action will be taken on 12b-1 fees, and her conviction for continuing to push hard for a fiduciary standard for brokers in the final reform bill.
Are you waiting to see the outcome of financial services reform before you make a final determination on how to proceed with harmonizing the rules for broker/dealers and advisors?
At the heart of that issue of harmonizing rules for broker/dealers and advisors is a fiduciary duty, and having the same standard of care for broker/dealers and investment advisors, and that requires legislation. So we’ve been working very hard in the House and the Senate, to mixed results honestly, to try to get that grant of authority to have a fiduciary duty across both categories of financial professionals. So until we have the legislation, it’s hard for us to get very much else done. That said, we have other issues that we’re moving ahead on: 12b-1 fees, point of sale disclosure, things in and around that space that we think are important. But our attention right now is focused on fighting for the legislative provision that would mandate a uniform fiduciary standard.
So you will continue to fight for a fiduciary duty for both brokers and advisors? Absolutely. We sent a letter on March 9, a very strong letter, to the Senate again pushing the issue and we worked hard on it in the House as well. It’s an important issue for us.
As far as the Dodd bill asking for the SEC to study the issue of broker and advisor obligations again, do you think the SEC should be studying this issue again?
We’re happy to study whatever Congress would like us to study. The Rand study was done; I think we have a very good handle on the issue. The key thing from our perspective is that if Congress wants us to study the issue again, that’s fine. But at the end of that study we need the authority to go ahead and take action. [The legislation] doesn’t give us that authority. That’s the real flaw from our perspective. There is not a grant of authority when the study is done to go beyond our existing authority in respect to rule writing.
So you’d have to go back to Congress?
That’s the issue.
That could take a long time.
Yes. The bill needs to give us the ability to create the fiduciary standard of conduct for all professionals at the conclusion of the study, and that’s the piece that’s so critical that’s missing.