Revitalizing The SEC Requires Adequate Funding

SEC Chairman Mary Schapiro testified before the Senate Subcommittee on Financial Services and General Government yesterday. Most of Ms. Schapiro’s testimony recounted current efforts to reinvigorate the enforcement program and improve investor protections. Changes such as the elimination of the penalty pilot program, facilitating the process for obtaining a formal order and recent or planned rule making proposals have been discussed before.

A critical point in Ms. Schapiro’s testimony however, should be carefully considered – the lack of funding for the SEC. This is not a new topic. Ms. Schapiro however, recited a number of critical statistics in her testimony, supplemented by three graphs in an appendix, which more than make the point: The SEC is being asked to do an increasingly difficult, complex and far-reaching task with what can only be called meager resources.

Between FY 2005 and FY 2007, the SEC had three years of flat or declining budgets and lost 10% of its employees. During the last two fiscal years, the agency obtained sufficient resources to lift its hiring freeze and just recently obtained supporting emergency supplemental funds. This will bring the current staff level to about 5% or 200 employees below that of FY 2005. Running hard to stay even is one thing. Running harder to go backwards is another.

It gets worse. While the agency fought hard to stay just a few years behind, the task demanded of it has grown and multiplied. For example, from 2003 through 2008, the cumulative growth in securities trading volume has increased over 250%. Over that same time period, the cumulative growth in the number of investment advisors has increased over 45%, while the amount of investment advisor assets has increased over 100%. The number of broker dealer branch offices increased during that same time period by over 80%. The statistics go on. The resources of the agency do not.

The increase in the current budget proposed by the administration is clearly a step in the right direction. It is however, only the beginning. No regulator can be expected to continually do more with less. This is particularly true in view of the increasing complexity of the securities markets which only makes the Commission’s job that much more difficult.

This is not to say that additional funding will solve all of the SEC’s problems. Clearly it will not. A number of the agency’s recent well publicized gaffes and outright failures would not have been cured with any amount of funding. Those however, are issues for another day. If there is to be a revitalization of the SEC, it must begin with adequate funding. Whether the agency is merged with the CFTC or several other agencies – and none of those proposals seem to make sense – without adequate funding, the job cannot be done. It is time for Congress to step up and provide the funding the SEC needs to do its job.