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March 15, 2011 at 05:53 AM
Congress’s clear intent to reduce the SEC’s funding was the first shoe to drop on the future of broker/advisor reregulation. The second shoe is the little reported release on March 10 of another Dodd-Frank mandated study, this one by Boston Consulting Group on “SEC Organization and Reform.” The D-F charge was “to engage an independent consultant to examine the internal operations, structure, and the need for reform at the SEC,” and to meet that goal, Boston Consulting looked at the SEC’s “organization structure, personnel and resources, technology and resources, and relationships with self-regulatory organizations (SROs).”
Like most of the studies related to the Dodd-Frank reregulation, this one is lengthy—261 pages—yet, as you can see from the above description, most of it pertains to very “inside the SEC” operational details, except the part about SROs. Yes, the plot thickens. Much of the former seems to involve pretty basic analyses, such as: “The SEC should engage in a rigorous assessment of its highest-priority needs in regulatory policy and operations, and reallocate resources accordingly.” (No kidding; and these guys get the big bucks for stuff like this?)
But the subtle point of this Study starts becoming clear almost from the get-go. Section 3 is of curious—and therefore, I suspect, telling—construction. Entitled “Context,” it’s really the intro to the Study, beginning with a two-page overview of the SEC starting in 1934, snore, followed by a seven-page discussion of the SEC’s historical and current reliance on SROs (which include nine exchanges, four oversight organizations [including FINRA] and nine clearing corporations). Then Section 3 launches into 14 detailed pages about all the demands on the SEC from the changing regulatory landscape, from evolving capital markets to new Congressional and legal requirements (including oversight of private funds, derivatives, credit rating agencies, asset-backed securitization and corporate governance reform).
Starting to see theme emerge here? The SEC has always relied on SROs to leverage its over-burdened and underfunded staff, and golly gee, if Congress isn’t currently asking the Commission to take on a lot more work (for what looks like less funding): What in the world should we do?
Funny you should ask. The Study concludes Section 3 with: “As discussed above, the SEC has been increasing its reliance on SROs, and recent discussions suggest the possibility that the SEC will rely on SROs in additional areas.”
