Due Diligence

Wall Street Joins In Plea For Bigger S.E.C. Budget

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SECWall Street lawyers are lobbying Congress to get the S.E.C. more money to do its job, and even pushing to give it the ability to set its own annual budget, writes Andrew Ross Sorkin in the NYTimes' Dealbook. Republicans have argued the the agency did such a horrible job regulating the markets and financial system pre-crisis that it doesn't deserve any extra money. (Of course, it is very convenient to point the finger at the SEC rather than at the financial firms who failed to manage their own risks and nearly brought the whole system to its knees. How exactly do you determine who is to blame for which failures and how much blame each of the many actors deserves? Unfortunately, much of how you answer that question probably depends on your politics. And actually, a government commission just attempted to do that very thing with its Financial Crisis Inquiry Report.)

Everyone knows the S.E.C. budget is under immense strain. Some say it was already underfunded before the passage of Dodd-Frank legislation piled a vast new array of studies, rulemkaings and other duties on its plate. It's hard to know. Funding is up since 2001. But the financial system is quickly getting more global and more complex to regulate. In a speech last week before the Practising Law Institute conference in Washington, Mary Schapiro said that over the past decade, market trading volume has doubled, the number of investment advisers the SEC monitors has grown by 50 percent and the funds they manage has increased to $38 trillion. Perhaps better funding would have allowed it to properly reign in the excesses of the aughts. As Sorkin points out:

Amid the looming financial constraints, the S.E.C. is cutting back on investigations, halting hiring — Ms. Schapiro was supposed to hire 800 new people this year — and canceling much-needed technology upgrades to monitor the markets. (Think “flash crash.”)

Now, some of the biggest securities industry attorneys, many of whom used to work at the S.E.C., have teamed up to lobby Congress because they worry that failing to give the agency the funds it needs will simply make it harder for it to do its job, setting it up to fail.

In an open letter to lawmakers, 41 prominent securities lawyers and professionals wrote: “Investors sidelined with decimated 401(k)s will be unwilling to again risk their capital if Wall Street’s cop-on-the-beat increasingly comes to be seen by the public as a cop-on-furlough.”

Stephen J. Crimmins, a partner at K&L Gates and a former S.E.C. deputy chief litigation counsel, spearheaded the letter-writing campaign because he was worried that the department was being purposely gutted.

“It’s absurd,” he said of the S.E.C’s budget issues. “You can’t run it on a shoestring. I don’t know if it is political games or what?”

The lawyers petitioning Congress are also calling on Congress to allow the agency to “self budget,” or set its own annual budget. The agency is already one of few government agencies that is self funding. It does not rely on taxpayer money, but on transaction fees and assessments from securities firms and others. (It does not rely on civil penalties and fines.) And yet, Congress decides how much of the fee money it collects each year it can use to do its job of regulating the country's securities markets and firms. Other bank regulators, like the Federal Deposit Insurance Corporation, are both self-funded and self-budgeting. Before Dodd-Frank was finalized, Congress eliminated a provision that would have given the same powers to S.E.C.

What do you think?

Here is a link to Sorkin's full post.

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