By Mark S. Nelson, J.D.
The House passed legislation that would include funding increases for both the SEC and the CFTC in FY22. The SEC’s proposed appropriation of $1.993 billion edges the agency ever-closer to the $2 billion mark, which it will likely break within a year or two if its current pace of modest funding increases continues. The CFTC, by contrast, has been historically underfunded given its regulatory duties, especially after enactment of the Dodd-Frank Act swaps and derivatives reforms more than a decade ago. But the House has proposed a $28 million or 9 percent increase for the CFTC in FY22. The House appropriations bill (H.R. 4502) is not necessarily ensured of becoming law because, as has happened in recent years, the appropriations process often does not edge closer to completion until late in the year when the House and Senate agree on an omnibus or several minibus appropriations bills to keep the federal government open during the upcoming fiscal year.
SEC funding. The SEC appears likely to continue its modest funding increases in FY22 with the House’s proposed $1.993 billion translating into an increase of $98 million or 5 percent. The proposal would set aside $17.6 million for the SEC’s inspector general and another $6.7 million for relocation expenses regarding the SEC’s Forth Worth, Texas regional office. For comparison purposes, the SEC in FY21 received an appropriation of $1.895 billion.
Proxy voting advice policy rider. Section 540 of the FSGG portion of the House appropriations bill includes a policy rider barring the SEC from using funds to implement Clayton-era SEC rules changes regarding proxy voting advice.
PCAOB policy rider. Representative Bill Huizenga (R-Mich) offered an amendment that would bar the SEC from using any funds to fill vacancies on the Public Company Accounting Oversight Board until the Commission acts to implement final rules on the Holding Foreign Companies Accountable (HFCA) Act. The HFCA Act, which became law on December 18, 2020, created a framework by which the SEC can suspend trading in certain foreign company stocks traded on U.S. exchanges if the home countries of those companies do not allow sufficient PCAOB inspection of the auditors of those companies. The policy rider was adopted as part of a larger en bloc amendment to the appropriations bill.
The bipartisan advocates for the HFCA Act have indicated that they believe there is some leeway for the SEC to implement the law’s provisions, although whether the SEC adopts such flexible language in its final rules likely will depend on the extent to which the agency recognizes the lawmakers’ letter on implementation as legislative history. Since the HFCA became law, the SEC has issued an interim final rule and request for comment covering portions of the HFCA Act, while the PCAOB has issued Proposed Rule 6100, which would create a framework for the PCAOB to determine that it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction.
SEC real estate policy rider. Representative Eleanor Holmes Norton (D-D.C.) offered an amendment that would strip the SEC of funds to arrange the lease of its Washington, D.C. headquarters. In recent appropriations bills, the SEC has often received an earmark for pursuing replacement lease options for its headquarters and for some of its regional offices. Representative Norton said the amendment would, in essence, shift the responsibility for leasing office space for SEC operations to the General Services Administration (GSA). The policy rider was adopted as part of a larger en bloc amendment to the appropriations bill.
According to Rep. Norton, the SEC ‘s efforts to manage its real estate have been beset by "mistakes" that could be avoided by tapping the GSA’s expertise. "It is incredibly inefficient, wasteful, and redundant for the SEC to be involved in the nuances of real estate decisions when GSA exists for that very reason," said Rep. Norton. "Like other federal agencies, the SEC should continue to have input and involvement in the decision-making process, but the ultimate real estate authority should lie with GSA, where it belongs."
Political spending rider eliminated. The House version of the Financial Services and General Government (FSGG) appropriations does not contain familiar language barring SEC rules on political spending. For example, Section 631 of the Consolidated Appropriations Act, 2021 (H.R. 133) for FY21 stated: "None of the funds made available by this Act shall be used by the Securities and Exchange Commission to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations."
Amendments not included. Republicans tried and failed to get numerous other SEC-related amendments considered in the en bloc groups of amendments that had been ruled in order by the House Rules Committee. These amendments included ones that would bar the SEC from implementing a public statement regarding enforcement of proxy voting advice guidance and would bar repeal of recently amended rules harmonizing exempt offerings. Another amendment would have struck Section 540 from the FSGG portion of the bill; that provision contains the proxy voting advice policy rider discussed above. Still other amendments would have limited the SEC’s ability to adopt ESG, climate change, and human capital rules.
CFTC funding. The proposed FY22 appropriation for the CFTC would be a significant increase for an agency that has in recent years occasionally struggled with keeping parts of its operations functioning. The CFTC would receive $332 million under the House bill. This amount would be a $28 million increase over FY21’s $304 million.
Most recently, the CFTC experienced a near collapse of its whistleblower program until a Congressional funding fix saved the program from having to shut down. As a result, the CFTC can deposit up to $10 million from its Customer Protection Fund into a separate account at the Treasury until the end of FY22 in order to avoid a situation where one or more large whistleblower awards could cause the fund to run out of money for related CFTC back office and outreach functions. The House appropriations bill, however, does not contain any explicit earmarks for the CFTC’s whistleblower program.