By James Hamilton, J.D., LL.M.
In the wake of the SEC Inspector General Report on the Madoff case, Senator Charles Schumer plans legislation that would allow the SEC to fund its own operations by using the transaction and registration fees it collects in place of a Congressionally-mandated budget. In the senator’s view, self-funding will give the SEC access to millions more than is allocated through the Congressional appropriations process.
The SEC is one of only two federal financial regulators that must go through the annual Congressional appropriations process. Federal banking regulators such as the Federal Reserve and the FDIC, on the other hand, can use what they collect in fees, deposit insurance and interest income to fund their operations.
Under the current system, noted the senator, the SEC staff is struggling to keep up with the more sophisticated actors in the market, and the federal government cannot keep starving the SEC’s budget or the agency will ``remain a shadow of its former self.” The senator, a key member of the Banking Committee, the SEC’s senatorial overseer, noted that the Commission’s ability to retain experienced personnel is an ongoing problem since Wall Street firms are increasingly able to lure the agency’s experts with higher salaries. Mr. Schumer emphasized that the SEC’s chronic under-funding must be addressed in a comprehensive way.
Currently, the SEC raises millions more dollars every year in registration and transaction fees (not including enforcement penalties or settlements) than it is allocated through the appropriations process, he noted, but its budget is limited to the amount approved by Congress. In 2007, though the SEC brought in $1.54 billion in fees, it secured just $881.6 million in funding. Had the agency simply been able to hold onto all the fees it collected, reasoned the senator, it would have represented a 75 percent increase over the budget it was allotted through the appropriations process
The senator also noted that SEC Chair Mary Schapiro has already signaled her support for his proposal. He further said that Ms. Shapiro has suggested that hiring hundreds of new employees over the next few years for the Division of Enforcement and the Office of Compliance, Inspection, and Examination will give the SEC the human and technological resources it needs to keep up with a vast and expanding market.
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