The Securities and Exchange Commission plans to use the $150 million budget boost that it received under the CRomnibus spending bill that passed in December to hire an additional 72 examiners for investment advisors and investment companies in 2015.
The agency will dedicate $305 million of its budget to its Office of Compliance Inspections and Examinations in 2015.
President Barack Obama’s fiscal 2016 budget, released Monday, would allocate $1.722 billion to the SEC, a 15% increase from the FY 2015 enacted level, and allow the agency to hire 431 additional staffers — 225 would be added to the agency’s OCIE, 180 of whom would examine advisors and investment companies. Ninety-three staffers would be devoted to enforcement, and 37 new positions would be added to bolster market oversight, including overseeing newly registered entities and to perform economic analysis.
OCIE expects to add 105 examiners total in 2015.
The SEC stated in its FY 2016 budget, released Monday, that without additional resources, “it is likely that the coverage level of investment advisors will remain in the range of 10% annually.”
However, if the requested resources under Obama’s 2016 budget “become available,” the regulator estimates that, once all the requested examiners are hired and trained, advisor coverage should reach 14%.
The CRomnibus bill allocated $1.5 billion to the SEC, which is $150 million more than the agency’s fiscal 2014 enacted level but $200 million less than the $1.7 billion requested by Obama for 2016.
The SEC goes on to state in its budget that “due to significant resource limitations, roughly 40% of registered advisors have never been examined. Even when excluding the influx of advisers that have registered more recently in the last three years, the percentage of firms never examined is still approximately 20%.”
SEC staff, the agency says, “will utilize additional resources in order to conduct focused, risk-based examinations of a portion of this population” of investment advisors.
The SEC says that “despite the SEC’s efficient use of limited resources to improve its risk assessment capabilities and focus its examination staff on areas posing the greatest risk to investors — efforts that helped to increase the number of investment advisor examinations approximately 20% from FY 2013 — the SEC was only able to examine 10%” of RIAs in FY 2014. “A rate of advisor examination coverage at that level presents a high risk to the investing public,” the SEC says.
SEC Chairwoman Mary Jo White said in a Monday statement that the SEC’s responsibilities “have increased significantly over the last few years across all fronts, and, at the same time, the financial markets and market participants have grown in size and complexity. Providing the SEC with the resources it needs to effectively oversee these markets and participants benefits America’s investors, businesses and our economy.”
Added White: “I am pleased that the president’s budget request would allow us to hire additional staff to enhance our enforcement and examination capabilities, provide greater oversight of our markets, add more experts to implement our expanded rulemaking responsibilities and permit the agency to continue to leverage technology to help fulfill its important mission.” Neil Simon, vice president for Government Relations at the Investment Adviser Association, says that while IAA “is pleased” that the administration is recommending additional funds for the SEC, IAA also believes that the SEC “must use its existing resources more efficiently and encourage the SEC to continue the progress it has made in this area.”
More strategic allocation of existing SEC resources “together with additional funding will enhance the SEC’s oversight” of investment advisors, Simon said.
White told members of the House Financial Services Committee recently that the number of advisor exams conducted in fiscal 2014 jumped approximately 20% to 1,164 from 964 in fiscal 2013, “with staffing levels remaining relatively stable.”
In those two fiscal years, White said, advisors examined by the agency’s OCIE managed approximately 25% and 30% respectively of the total assets under management by all registered investment advisors.
— Check out Obama’s $4 Trillion Budget Sets Up Tax Fight With Congress on ThinkAdvisor.