House GOP Rejects Frank Measure for SEC Funding Boost

Instead, the Republican committee members said the SEC could better protect investors and prevent another Bernie Madoff-like fraud by using its resources to conduct more examinations of registered investment advisors. In FY 2011, 8% of registered investment advisors were examined and the commission projects that it would examine 11% of registered investment advisors in FY 2013, GOP members said.

Rep. Jo Ann Emerson, R-Mo., chairman of the House Subcommittee Financial Services and General Government Committee on Appropriations, asked SEC Chairman Mary Schapiro the same day during a hearing on the proposed budget boost why the agency needs a spending increase of $245 million over 2012’s level when the agency’s budget in 2011 also saw a $200 million increase over the previous year. “Most agencies haven’t received increases like the SEC,” Emerson said. “How have investors benefited from such large increases?” she asked Schapiro.

Schapiro replied that the agency recognizes “we are close to unique compared to other federal agencies” in its increased budget levels, but the SEC “was underfunded for years,” and the agency needs a boost in funds to deal with complex markets and financial transactions. Since the Bernard Madoff Ponzi scheme, “we have successfully restructured the enforcement program to focus on risky practices” and the agency’s exam program is now using a more risk-based approach.

But without additional resources, Schapiro told the subcommittee, the SEC’s examination of investment advisors could be compromised. “The investment industry is rapidly evolving, with the development of new products posing new risks to investors and the increased complexity of the markets posing challenges to regulators,” she said. “In FY 2013, additional resources would bolster the agency’s ability to inspect and examine the expanding breadth of entities under our jurisdiction. Without these resources, the increasing complexity of registered firms and the disparity between the number of exam staff and the firms could compromise the effectiveness and credibility of the commission’s inspection and examination program.”