What the SEC Wants Next Year

It is time once again for the Securities and Exchange Commission to sing for its supper. Even though it’s an independent agency, supposedly insulating it from political pressure, it still needs to go back to Congress each year to get funding. The budget request for FY 2013 totals $1.566 billion, an increase of $245 million (19 percent) over the agency’s FY 2012 appropriation.

The SEC included several performance goals that caught my attention.

  • Percentage of firms receiving deficiency letters that take corrective action in response to all exam findings. The SEC has a goal of 93%. I still find that number shockingly low. If the regulator says you’re doing something wrong, I would expect that number to be closer to 100%.
  • Percentage of attendees at the Compliance Outreach program that rated the program as “Useful” or “Extremely Useful” in their compliance efforts. For FY 2011 the target was 80% and the actual was 86%. Apparently positive responses in SEC program evaluations could increase SEC funding.
  • Percentage of investment advisers, investment companies, and broker-dealers examined during the year. For FY 2011 the plan was to examine 11%, but the SEC only achieved 8%. The FY 2012 is 9% and the 2013 estimate is 11%.  There is a separate goal for high risk advisers, but measures have not been in place for a few years.
  • Percentage of exams that identify deficiencies, and the percentage that result in a “significant finding” This one leaves me nervous as a goal. It’s hard to parse the indicator because it covers all SEC examination, not just investment advisers. The Actual number for FY 2011 was 82% with 42% having a significant finding.  I hate to see enforcement target and deficiency targets.
  • Average Cost of Capital.  Here is a metric I would like to learn more about. The SEC states that FY 2010 was 10.99% and FY 2011 was 10.67%. Frankly, I have no idea what those percentage mean.
  • Survey on whether SEC rules and regulations are clearly understandable.  This a great goal. Unfortunately, the measure has no data, no data source and no goal.

From the SEC examination side, the Office of Compliance Inspections and Examinations is looking to add an additional 65 positions to the exam staff to “address the disparity between the number of exam staff and the growing number and complexity of registered firms; and more effectively risk target, monitor, and examine market participants.”

The Division of Investment Management is requesting 40 additional positions, largely to focus on the “major milestone” when private fund advisers begin to file systemic risk information with the SEC on Form PF in late FY 2012.

Now it’s up to Congress to decide how mush to put in the SEC’s kitty. Anyone willing to bet that the SEC gets most of what it asks for? No, I didn’t think so.


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