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U.S. Securities and Exchange Commission

Speech by SEC Chairman:
Statement Concerning Agency Self-Funding


Chairman Mary L. Schapiro

U.S. Securities and Exchange Commission

News Conference Call
Washington, D.C.
April 15, 2010

Thank you, Senator Schumer.

And, thank you for the work you, Chairman Dodd and other Committee members are doing to protect America's investors and to reduce the chances of another financial crisis by passing critical financial regulatory reform legislation.

The crisis was a stark demonstration of just how important it is to give financial regulators the tools needed to address systemic risk, to end too-big-to-fail, and to bring risky but unregulated elements of the financial system under the regulatory umbrella. The SEC, in particular, has critical market regulation and investor protection roles that will likely be expanded to include additional responsibility for hedge funds, and some OTC derivatives.

As financial institutions get bigger, markets move faster and investments grow more complex, the SEC's role becomes ever more critical.

As I wrote in a letter to Majority Leader Reid and Minority Leader McConnell today, self funding ensures independence, facilitates long-term planning, and closes the resource gap between the agency and the entities we regulate. In the process, it allows the SEC to better protect millions of investors whose savings are at stake.

Self funding also ensures an SEC that is more effective at identifying and addressing the kinds of risk that dealt a significant blow to the American economy.

Self-funding is so important to effective financial regulation that it is considered the necessary financing model for new regulators like the Federal Housing Finance Agency and the proposed Consumer Financial Protection Agency.

Right now, however, the SEC languishes as one of the few financial regulators still subject to the annual appropriations process.

The SEC needs self funding to better protect consumers and their investments.

And here's why:

In the immediate post-Enron era, the SEC saw significant increases in its budget. But priorities soon shifted, and funding dropped just as markets were growing in size and complexity.

At the height of the pre-crisis frenzy, the SEC was actually forced to reduce staff. Between 2004 and 2007, the SEC's enforcement and examination programs lost 10 percent of their professionals. And, as Wall Street harnessed computers so powerful that only the speed of light held them back, we were forced to cut funding for new IT initiatives by 50%.

Only now can we afford to begin to develop the new technology that will allow us to evaluate, store and retrieve the kind of tip information that might stop the next major fraud.

Meanwhile, since 2003, trading volume has more than doubled, the number of investment advisers has grown by 50 percent, and the funds they manage have increased nearly 60 percent, to $33 trillion.

That means that our 3,800 employees now oversee approximately 35,000 entities -- including 11,500 investment advisers, 7,800 mutual funds, 5,400 broker-dealers, and more than 10,000 public companies.

Self funding would have many benefits for investors:

  • It would allow the SEC to increase its professional and technical capacity, to keep up with the financial industry's rapid growth;

  • It would enhance our long-term planning process, allowing the SEC to address the increasingly sophisticated technologies, products, and trading strategies adopted by the financial services industry; and,

  • It would provide the flexibility to react to developing risks in the same way that our domestic and foreign counterparts did during the recent financial crisis, with rapid staffing and strategic responses that help control systemic damage.

Today, the SEC's budget is offset by fees on the securities industry, assessed primarily on securities transactions and registrations. However, the fees collected by SEC are completely independent of, and typically significantly exceed, the agency's budget. For example, in 2010, the SEC will collect about $1.5 billion for the Treasury, while its appropriation is $1.1 billion. I believe that fees assessed on investors' transactions should be dedicated to protecting investors.

Effective regulation is essential to our economic security and growth. I am committed to continuously improving the performance of the SEC. We have restructured our agency, re-energized our team and re-vitalized our executive corps, hiring new leaders with real-world experience who are eager to lead our dedicated and talented career staff in the fight for investors.

But to truly protect investors to the best of their abilities, they need the independence, planning ability and resources that self funding provides.

Self funding is an important component to the world class industry supervision and investor protection that American investors deserve.

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Modified: 04/15/2010