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Though still pumped up to post-scandal strength, the SEC announces spending plans that emphasize individual investor protection and detection of investment scams over corporate enforcement.
Alan Rappeport, CFO.com | US
March 27, 2007
The Securities and Exchange Commission will use this year's relatively modest budget increase to focus on high-tech and down-home issues, rather than the corporate giant-slaying it has tackled in past years.
In testimony before Congress on Tuesday, SEC Chairman Christopher Cox formally requested the budget appropriations for the 2008 fiscal year announced by President Bush last month. Next year's budget will increase from $877 million to $903.5 million. The 3.2 percent increase is relatively small compared to the 12.5 percent increase in 2005 that came in the wake of corporate scandals and allowed the SEC to hire 106 new employees.
Most of next year's budget increase will be devoted simply to maintaining existing staffing levels and becoming more efficient. "The agency's total budget has to increase by over 3.5 percent just to maintain personnel at a steady state from year to year," Cox said. About two-thirds of the SEC's total budget covers the payroll for the agency's 3,600 staff members.
Despite the relatively small increase, Cox testified that the 2008 budget was adequate to address the SEC's primary concerns. "The level of funding in this budget will give the SEC the tools we need to address new, emerging risks in the nation's capital markets," Cox said.
The SEC will look to address risks associated with hedge fund insider trading, the integrity of 401(k) plans, and the quality of disclosures to prevent municipal securities fraud. Cox emphasized the SEC's goal of protecting aging baby boomers from investment scams. "Scam artists will swarm like locusts over this increasingly vulnerable group — because that is where the money is," Cox said.
Indeed, Cox's speech focused heavily on investors, singling out the Sarbanes-Oxley "fair funds" which have used penalties in SEC cases and returned more than $1 billion to injured investors. Cox plans to devote a portion of his 2008 budget to creating a new office and computer system devoted to disbursing those funds more efficiently. However, Cox made no mention of any specific enforcement actions against corporations, including Monday's civil and criminal charges — heavily publicized by the SEC — against nine former executives of bankrupt auto parts maker Collins and Aikman.
Cox did note that 2008 will see tighter SEC regulation of credit ratings agencies, notably Standard and Poor's, Moody's and Fitch Ratings, to avoid conflicts of interest and allow for more competition. The Credit Rating Agency Reform Act of 2006, signed last October, removed the SEC's authority to anoint certain rating agencies by designating them as "nationally recognized rating agencies," or NRSROs, but gave the SEC new authority to inspect such organizations.
Cox also said that the agency's $54 million investment in interactive data, or eXtensible Business Reporting Language (XBRL), is proving successful in its pilot stage. Companies, he said, are finding the costs of XBRL minimal, while the benefits have been substantial.
Cox said that the SEC itself is not exempt from the need to modernize and improve. In 2008 it will continue to improve its "internal financial controls," upgrade its financial system and provide better security for its information systems. The SEC's own controls have been criticized in the past by the Government Accountability Office, although the SEC passed its audit last November.
"The SEC must set the example not only for other federal agencies, but for all public companies whose financial statements and disclosures we review," Cox said.