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Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Monday, February 1, 2010

SEC Plans to Use Increased Funding to Reinvigorate Enforcement

The SEC released its 2011 Budget Justification which provides further information about how the SEC plans to spend its funds if the increased funding set forth in the Administration's budget comes to pass.  The Executive Summary states:

Between fiscal years (FY) 2005 and 2007, the SEC experienced three years of flat or declining budgets, losing 10 percent of its employees and severely hampering key areas such as the agency’s enforcement and examination programs. Even with the funding increases provided by Congress in the last two years, under the SEC’s current funding level, the agency’s workforce still falls about one percent—or 35 full-time-equivalents (FTE)—short of the FY 2005 level. And yet while the workforce at the SEC has shrunk, the job that the SEC has been asked to do has grown even larger. Since 2005, the number of investment advisers registered with and overseen by the SEC has grown by 32 percent, and the number of broker-dealer branch offices has grown by 67 percent.

The SEC oversees a total of more than 35,000 registrants, including over 10,000 public companies, 7,800 mutual funds, about 11,500 investment advisers, 5,400 broker-dealers, 600 transfer agents, 12 securities exchanges, 10 nationally recognized statistical rating organizations (NRSROs), and self-regulatory organizations (SROs) such as the Financial Industry Regulatory Authority, Municipal Securities Rulemaking Board, and Public Company Accounting Oversight Board. While other financial regulators have close to parity between the number of staff and the number of entities they regulate, in recent years SEC staffing and funding simply have not kept pace with industry growth.
In order to provide sufficient resources to restore the agency as a vigorous and effective regulator of the nation’s securities markets, and to implement the Administration’s proposal for financial reform, the President has requested $1.258 billion in FY 2011 for the SEC. This represents an increase of approximately $139 million over the SEC’s FY 2010 funding level of $1.119 billion, and authority for 4,720 total positions (or 4,190 FTE), an increase of 380 positions (associated with 119 FTE) over FY 2010. Within this amount, $24 million in FY 2011 is requested contingent upon the enactment of financial reform legislation, to begin implementation of the SEC’s new and enhanced authorities under the Administration’s financial reform proposal.

It is important to note that this proposed increase in SEC spending would be fully offset by increased SEC collections of fees on securities transactions and registrations. In FY 2011, pursuant to the requirements of the Investor and Capital Markets Fee Relief Act (P.L. 107-123), the SEC will set fees at levels sufficient to raise $1.7 billion in collections, an increase of $220 million over FY 2010.

The SEC identifies as its top priority reinvigorating its enforcement program, and its plans to fill 1478 positions, an increase of 70 positions over FY2010.  It plans to fill 1033 positions in the Examinations program, an increase of 100 positions.  The new Division of Risk, Strategies & Financial Innovation will be allocated 102 positions, an increase of 30 positions.

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