The SEC, Funding, and Rulemaking

There is turmoil in Congress as Republicans take control of the House of Representatives. One of their targets seems to be implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

It’s probably too late to repeal it and too early to start amending it. Too much corporate machinery has been put in place to start changing the statute at this point. It looks like Congress is going to use its control of spending to impede implementation and enforcement.

The SEC has asked for more funding and submitted a budget request of $1.258 billion for fiscal 2011. That was up from the previous year’s $1.118 billion budget. SEC Chairman Mary Schapiro said the agency would need to hire an additional 800 people to meet its expanded duties under Dodd-Frank.

Clearly, SEC will be stretched thin to deal with rule-making, enforcement, and examination if they are starved for budget dollars. More dollars means more staff and more technology to deal with the workload.

We have already seen that the SEC has missed its proposed deadlines in its rulemaking agenda and others have been explicitly delayed because of budget uncertainty.The most high-profile stalled effort is the proposed new Whistleblower office. Dodd-Frank imposed a heavy rule-making agenda on the SEC. They are likely to continue missing deadlines without the manpower and budget.

For corporate compliance, that means uncertainty about how Dodd-Frank will be implemented. If you are in a venture capital firm, you are wondering if you will have to register with the SEC as an investment adviser. There is proposed rule with the definition. There is a proposed rule with what reporting the venture capital firm will need to make. But you don’t know exactly where the definitions and rules will end up.

If you are a private fund adviser, you know you will need to file a Form ADV. The SEC has proposed a new form. It’s too early to start filling it out, because it may change. They will still need to change the online registration system to address whatever the final form will be.

We are now in 2011. That July 21, 2011 compliance deadline is getting closer and closer, but the SEC is falling further and further behind.