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Chair White Warns of ‘Deterioration’ of Market Oversight Without Budget Boost

In testimony before a House Appropriations subcommittee, SEC Chair Mary Jo White warned lawmakers the agency’s ability to oversee the securities markets will be hurt if it fails to get a budget increase from Congress. The commission is asking lawmakers for a $1.78 billion budget for the fiscal year beginning in October, nearly $200 million more than its spending for the current year.

SEC Chair Mary Jo White on March 22, 2016, warned lawmakers the market regulator will suffer “deterioration” in its ability to oversee the securities markets without a budget boost from Congress.

In testimony before a House Appropriations subcommittee, White defended the SEC’s $1.78 billion budget request for fiscal 2017, which begins in October. The total represents a nearly $200 million increase over the SEC’s current year funding, which would go primarily toward hiring 250 new staffers.

Half the new positions are slated for the Office of Compliance Inspections and Examinations, chiefly to boost exam coverage of registered investment advisers. New examiners will also be devoted to overseeing exchanges, self-regulatory organizations, and broker-dealers, White said.

The Division of Enforcement can expect to see 52 new hires, 12 of whom would go toward litigation support, which the SEC chief said reflects the greater case-load from charging more individuals, and not just firms, with securities violations.

If the SEC doesn’t receive funding for the new positions “you would essentially see a deterioration in every one of these priorities we outlined in our budget request,” White told the Financial Services and General Government subcommittee.

White’s remarks underscore a gradual shift in the SEC’s rhetoric to budget-makers. In years past, the commission has emphasized the need to finish mandated rulemakings under the Dodd-Frank Act and the JOBS Act in its pleas for greater funding. With the bulk of rules from both of laws completed, the SEC is now making the case that a bigger budget is required to enforce the new rules and oversee new pools of registered businesses.

Without new funding “we would clearly be compromising the mission, compromising the markets, and compromising investor protection,” White said.

The House Appropriations Committee has not been receptive to the SEC’s argument for a bigger budget. The SEC won a funding increase for fiscal 2016 as part of a broader budget compromise between Republican lawmakers and the White House, despite the committee’s earlier recommendation for no funding increase from fiscal 2015.

During the latest hearing, Rep. Ander Crenshaw, a Florida Republican and the subcommittee’s chairman, made little comment on the specifics of the SEC’s request. He expressed support for full funding of the Division of Economic and Risk Analysis (DERA), which is responsible for providing economic analysis of SEC rules, among other duties. DERA’s activities enjoy Republican support because they want the SEC’s activities subjected to greater cost-benefit scrutiny.

“I believe cost-benefit analysis of SEC rulemakings is very informative and I support the work that DERA does to educate the commission about the macro and micro economic effects of SEC rulemakings,” Crenshaw said in his opening statement.

Lawmakers grilled White on a range of issues, mostly unrelated to the budget request. Several Republicans pressed the SEC chief on an upcoming Department of Labor (DOL) rule that would subject retirement advisers to tougher conflict-of-interest standards.

The DOL plans to release its long-awaited fiduciary rules in the “near future,” Labor Secretary Thomas Perez told the House Education and Workforce Committee earlier this month. Labor in January sent the rule to the White House’s Office of Management and Budget, a key step towards its finalization.

The SEC is working on a likely overlapping standard that would impose a unified fiduciary duty for registered investment advisers and broker-dealers, acting on authority granted under the Dodd-Frank Act. Last year, Republicans in Congress pushed the SEC to act before the Department of Labor. During the hearing, opponents of the DOL rule sounded more concerned with how the SEC would harmonize its own standard with its counterpart’s.

“We’ve had parallel rules, and do have parallel rules now that are not totally consistent,” White said. “And we do our best to give guidance and clarity.”

She declined to give a timeline on when the SEC would finish its own fiduciary rules. “It’s complicated,” White said. “Not fast, by any means.”