The US Congress should either ramp up funding for the SEC to meet the demands of new markets, trading technologies and expanded responsibilities or scale back the agency’s role more in line with available resources.
That’s the conclusion of an independent consultancy study, mandated by the Dodd-Frank Act and released to Congress last week by the Boston Consulting Group (BCG).
Congress should consider those two very different choices after the SEC implements a series of ‘no regrets’ optimization steps, says the report, which include delegating some activity to self regulatory organisations, streamlining the agency’s management structure and investing in technology and human resources.
The 263-page report was issued as the SEC comes under fire for internal ethical missteps and having been accused of failing to prevent everything from the Madoff debacle to the financial meltdown.
Meanwhile, Congress is debating a proposal to boost SEC funding for 2012 to $1.4 bn, which would allow the agency to add more than 600 full-time staffers, according to media reports.
The BCG study says Congress should ‘relax funding constraints to allow the SEC to better fulfil its current role or change the SEC’s role to fit available funding’.
In addition to the gap between authorizations and available resources, the BCG authors also point out ‘disconnects’ between stakeholder expectations and the agency’s legal authorizations, and between the ‘dynamism of the markets and rigidities’ arising from organizational constraints and the SEC’s culture.
Under Dodd-Frank, the SEC is called upon to create five new offices within the agency: Office of Municipal Securities, Office of Credit Rating Agencies, Office of Investor Advocate, Office of Minority and Women Inclusion, and the Whistleblower Office.
New oversight responsibilities mandated for the agency under Dodd-Frank include private funds, which are now required to register with the SEC, derivatives and swaps (split between the SEC and the Commodity Futures Trading Commission), credit rating agencies, and asset backed securities. The agency also has new rule making authority on corporate governance issues, especially concerning executive compensation.
In a statement, SEC head Mary Shapiro says ‘the independent consultant’s report offers valuable recommendations that will help us improve SEC operations and market oversight’. She adds that the agency is creating a series of working groups to address the report’s recommendations and report back to Congress.
‘These are significant steps, but they will not be our last,’ she continues. ‘In the coming months we will report back to Congress on the other steps we will be taking to effectively and efficiently fulfil our market oversight and investor protection mission.’