Risk & Compliance

How the SEC Would Spend $1.3 Billion

Chairman Mary Schapiro explains her agency's need for a 12% boost to its budget.
Sarah JohnsonMarch 17, 2010

A 12% increase in the Securities and Exchange Commission’s budget would enable the regulator to hire 374 more employees, some of whom would work for its corporate-finance and enforcement divisions, said SEC chairman Mary Schapiro today.

Schapiro testified before a House appropriations subcommittee on Wednesday to justify President Obama’s request that the commission receive approval of a $1.3 billion budget for the 2011 fiscal year (which runs from October 1, 2010, to September 30, 2011). She explained that in addition to the new hires, the bigger budget would help the SEC expand its work in surveillance, risk analysis, and technology, as well as give its staffers more training.

Most core to the interests of corporate CFOs, the SEC’s Division of Corporation Finance would receive an 8.7% funding boost, including 30 new employees. The division intends to give more attention to the disclosures of large and “financially significant” companies and is in the process of updating the disclosure rules that publicly traded companies follow.

More broadly, Schapiro said she needs $24 million in additional funds to meet the new requirements proposed in the financial regulatory reform legislation circulating on Capitol Hill. Introduced on Monday, the Senate bill would give the SEC additional authority to supervise credit-rating agencies, reward whistle-blowers, and oversee hedge funds, which would be required to register with the commission as investment advisers. The bill — which will need to be reconciled with the companion House legislation passed late last year — would also make the SEC self-funded, eliminating the need for the commission to receive congressional budget approvals every year.

In her testimony, Schapiro called the next fiscal period “a critical year” for the SEC. Indeed, in the wake of the financial crisis, the commission has spent the past year cleaning house and reorganizing. That work has involved creating new divisions, cutting out layers of management, streamlining processes, and, in particular, boosting its enforcement staff under a new director, Robert Khuzami. “In recent years, the SEC’s enforcement program had suffered under a variety of procedural, structural, and budgetary constraints,” said Schapiro.

By all accounts, the SEC has been understaffed in recent years. The regulator lost 10% of its employees between 2005 and 2007, when its funding level was either flat or reduced. Currently, more than 3,800 SEC employees oversee more than 35,000 entities, Schapiro said.

The staffing issue became more pressing when Bernard Madoff’s Ponzi scheme came to light — a fraud that tarnished the reputation of the SEC, which missed or ignored several warning signs long before the fraud was uncovered. Under the proposed budget, the commission would increase the funds allocated to its inspections and examinations budget by 12% over fiscal 2010.

The SEC’s information technology systems have also fallen behind in recent years. Investments in new systems fell by more than half earlier this decade, Schapiro said. The commission recently centralized its tips and complaints across its many regional offices into one searchable database, and plans to improve how those tips can be searched and analyzed.