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House Financial Services Committee Plans to Cut SEC Budget

The House Financial Services Committee attacked the SEC’s justification for a budget boost as it prepared a formal response to the White House budget proposal. Lawmakers questioned the agency’s rationale for a bigger appropriation, citing unfinished Dodd-Frank Act rules. They also criticized the SEC’s information technology safeguards and examination priorities.

The House Financial Services Committee attacked the SEC’s justification for a budget boost.

Lawmakers are scheduled to formally reply to the White House’s proposed budget on February 12, 2015.

Under the White House request released in early February, the SEC would see its budget grow to $1.72 billion, up from about $1.5 billion approved for the current fiscal year. The SEC plans to put much of the additional funding toward 431 new hires, including 225 additional examiners who would expand examinations of investment advisers.

In a draft of its proposed budget views and estimates, the GOP-led panel questions the agency’s rationale for a bigger appropriation, citing unfinished Dodd-Frank Act rules. Lawmakers criticized the SEC’s information technology safeguards and examination priorities.

The response signals that the White House, which won a $150 million funding increase in fiscal 2015, faces a fight as it looks to build on that increase.

A September 2014 report from the SEC’s inspector general faulted the regulator for failing to account for its laptop inventory, risking the “unauthorized release of sensitive, nonpublic information.” The SEC, lawmakers wrote in the budget response, can’t claim inadequate funding and at the same time “waste these valuable resources because of poor internal controls to track the purchase of IT products.”

The committee response also highlighted a 2014 GAO report that found significant internal control deficiencies in the SEC accounting for the penalties it collects for regulatory violations.

“The SEC is at risk of losing the public’s trust by reprimanding and sanctioning public companies and their auditors for financial reporting failures when the agency’s financial statements contain deficiencies of their own,” the lawmakers said.

The document praises the SEC for its promise to focus on finishing provisions of the JOBS Act for crowdfunding and small public offerings that are exempt from SEC registration and as its plan to add staff to do economic analysis when writing rules.

In response to a request for comment, an SEC spokesman pointed to Chair Mary Jo White’s budget statement from early February. The proposed funding increase, White said, was necessary to effectively oversee increasingly complex financial markets and meet the SEC’s expanding responsibilities.

Once approved by the Financial Services Committee, the budget will be sent to the House Budget Committee.