A Beefed Up SEC Looks More Likely
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Tuesday, February 04, 2003

A Beefed Up SEC Looks More Likely

While the ink has yet to dry on the Bush Administration's proposed budget, the Securities and Exchange Commission is already exploring ways to spend the additional funds. Yesterday President Bush asked Congress to earmark $841 million for the SEC. Today, the commissioners voted to seek comments on ideas it has developed to enhance the oversight of the fund and investment advisor industry.

If approved, that figure would represent a 48 percent increase from the Commission's 2002 budget. Meanwhile, its final 2003 budget is still up in the air. Bush asked for Congress to earmark $776 million for fiscal 2003, but Congressional leaders expect the final amount to be no more than $650 million. The SEC intends to hire 710 new attorneys, accountants, and examiners for both fiscal years, with the funds.

Meanwhile, Chairman Harvey Pitt suggested in an open meeting today that if the SEC receives the funding, he would be more confident that the five-year period between inspection of fund firms would be met. He added that the SEC should also examine whether the five-year inspection rotation is frequent enough and whether those inspections should be more involved.

Pitt's comments came as part of a discussion by Commissioners about ways in which the SEC can better ensure fund firms and investment advisors comply with existing securities laws. The commissioners ultimately agreed to seek comment on ways that the SEC could ensure those results.

The four ideas on which the SEC is seeking comment include the following:

  • requiring firms hire an independent compliance expert
  • expanding the role of independent public account to look at compliance
  • the creation of one or more self-regulatory organizations (SROs)
  • requiring each advisor to obtain fidelity bond

    The SEC's thoughts on the creation of one or more SROs has created the most consternation for the fund industry. The commissioners, though, seem to believe that an SRO would help them regulate what has become a sprawling industry.

    The SRO could establish business rules or ethical standards for firms to follow, pointed out Pitt. The SRO could also be used to provide oversight on whether SEC rules are being observed.

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