Oral Testimony Concerning
Fee Collections Required by the Federal Securities Laws
By Laura S. Unger
Acting Chair, U.S. Securities & Exchange Commission
Before the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises
Committee on Financial Services
United States House of Representatives
March 7, 2001
Chairman Baker, Ranking Member Kanjorski, and Members of the Subcommittee:
Thank you for the opportunity to testify today on behalf of the SEC regarding fee collections required by the federal securities laws. I'm honored to be the first SEC Chairman to appear before the Capital Markets Subcommittee of the newly created House Financial Services Committee.
Today, the Subcommittee examines an issue of considerable importance to our capital markets. The current fees the SEC is required to collect registration fees, transaction fees, and merger and tender offer fees impose excessive costs on investors, pubic companies and securities firms. Although Congress first imposed these fees as a means of recovering the costs of securities regulation, the Congressional Budget Office today estimates that fee collections this fiscal year will total almost $2.5 billion - an amount more than five times the SEC's current budget.
The Commission shares the Subcommittee's concerns regarding these excess collections and believes that there is an opportunity for Congress to significantly reduce these fees. Crafting a successful fee reduction is technically complex, and it affects a number of interested parties. Because these fees are the source of the SEC's funding, it is also critically important to the Commission that the fees be reduced in a way that is consistent with full and stable long-term funding. A stable source of long-term funding will ensure that the SEC can continue to effectively perform its statutory mission of protecting investors and maintaining market integrity.
I want to briefly mention the four elements the Commission believes are essential for any successful fee reduction, all of which are explained in greater detail in the written testimony we've submitted.
First, any bill should take into account the difficulty of predicting future market conditions. The NSMIA example shows that simply reducing the fee rates will reduce collections only if our markets do not exceed current projections. Fees should be reduced in a way that leads to more stable and predictable fee collections in the future.
Second, any bill should reduce fees in a manner that spreads the costs of regulation among those who benefit from the activities of the Commission. By targeting all three types of fees the Commission collects, Congress can reduce costs not only on investors and other market participants, but also on the capital raising process.
Third, any bill must be administratively workable for both industry and government. The current fee collection system involves a large number of parties, all of whom will have to be able to work with any fee rate reduction mechanism.
Fourth, and above all to the agency, we believe that any fee reduction bill must be consistent with full and stable long-term funding for the agency. This involves two prongs: (1) preserving the ability of our appropriators to fund SEC operations out of offsetting collections; and (2) ensuring that the agency continues to be able to attract and retain qualified staff.
The Senate fee reduction bill Senators Gramm and Schumer have described to you ensures that the currently projected offsetting collections will be available to our appropriators to fund the agency in future years. The Senate bill also addresses the SEC's current staffing crisis by giving the Commission the much-needed ability to match the pay and benefits of our sister regulators at the federal banking agencies. For fiscal year 2000, attorneys, accountants and examiners at the banking agencies made 24 to 39% more than their counterparts at the SEC. You can imagine the effect this has on our staff's morale - and their pocketbook.
The pay discrepancy between us and the banking regulators is particularly illogical in the wake of the historic Gramm-Leach-Bliley Act. Gramm-Leach-Bliley requires increased coordination among financial regulators as they undertake examinations of increasingly complex financial services firms. More than ever before, Commission staff members are working side-by-side with their banking counterparts and performing similar regulatory functions, while making substantially less.
The Commission must be able to attract and retain a high caliber of staff to tackle some of the most complex and difficult issues it has ever considered. No segment of American business has been more transformed by the rapid pace of technological change in recent years than the securities industry. No less important, our markets today are increasingly global - a trend that most expect to accelerate in the coming years.
The demographics of our markets have radically changed as we increasingly become a nation of investors. Twenty years ago, only 5.7% of Americans owned mutual funds. Today, some 88 million shareholders, representing 51% of U.S. households, hold $7.4 trillion worth of mutual funds. This exceeds by about $4 trillion the amount on deposit at commercial banks. All of these developments raise complex and critically important challenges that the SEC must be prepared to meet.
At such a critical time in our markets' development, the Commission simply cannot afford to suffer a prolonged staffing crisis. Alarmingly, our attrition rate is nearly double the government average. Over the last two fiscal years, we have lost 30% of our attorneys, accountants and examiners, including a number of our most experienced and skilled professionals who have left to take better paying jobs. If this trend continues, the Commission's mission of protecting investors and maintaining the integrity of the markets will be seriously threatened. We would prefer to work on lifting Title V pay restrictions before a crisis arises as it did for the banking agencies in 1988.
In conclusion, I want to commend the Subcommittee for conducting this hearing. We look forward to continuing to work with you and other interested parties on this issue.