Compliance

A Look At The SEC's Plans For The FY 2013 Budget

Harriet Davies Editor - Family Wealth Report 15 February 2012

A Look At The SEC's Plans For The FY 2013 Budget

While the president’s budget, which contemplates an increase of over 18 per cent for the SEC during FY 2011, is “highly unlikely” to survive Congress, the regulatory agency has received substantial increases over the past two fiscal years in difficult environments, points out David Tittsworth, executive director at Investment Adviser Association.

The Securities and Exchange Commission is requesting a budget of $1.566 billion for the financial year 2013, a $245 million increase on the 2012 budget, supporting an additional 676 positions within the agency.

“It is highly unlikely that the president’s budget will survive Congress.  However, it is interesting to note that the SEC has received a total increase of $210 million in 2011 and 2012 in spite of the difficult and divisive political environment,” said Tittsworth.

Meanwhile, the Commission said fiscal year 2011 was a record one in terms of enforcement actions, in which it filed 735 enforcement actions and obtained over $2.8 billion in penalties and disgorgement.

Going forwards, the extra resources will be dedicated to adequately staffing investor protection missions, preventing regulatory bottlenecks as new oversight regimes come into play and existing ones are streamlined, strengthening oversight of market stability, and expanding IT systems, the SEC said.

“We certainly understand that the SEC has many competing priorities, but our primary concern is that the SEC use its resources wisely to ensure a higher frequency of examinations of investment advisory firms,” said Tittsworth.

The regulator said its budget would support an additional 222 positions (or 65 full-time equivalent) compared to 2012 at the Office of Compliance Inspections and Examinations, with 90 per cent of these dedicated to the exam program. However, it is “not clear that the new examiners would be dedicated to enhance investment adviser examinations,” said Tittsworth.

On the investor protection side, the agency’s strategy divides into categories such as enforcing securities laws and looking out for investors. To meet the first of these objectives, the SEC will be hiring quantitative specialists to analyze trading strategies across all types of securities, looking for potential market abuse.

As an example of how it uses quantitative analysis, last year the regulator launched an “aberrational performance inquiry” to combat hedge fund fraud by using proprietary risk analytics to identify returns that appear inconsistent with a hedge fund’s strategy and then scrutinizing these further.

On the investor side, the Commission will, in FY 2013, be recommending “several rule reforms” to “enhance” the information given to mutual fund investors. These will include proposed amendments to the mutual fund shareholder report framework and proposed rules to increase the user-friendliness of disclosures around variable annuities, as well as ones to improve the delivery of information such as through digital channels.

Meanwhile, as the SEC implements the rules required under the Dodd-Frank Act, it will also be expanding its ranks to meet growing demand for interpretive advice.

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