Another SEC official calls for industry-funded exams

Amid budget constraints, a growing chorus of voices at the SEC are calling for GPs to pay for their own exams.  

Rick Fleming is the latest US Securities and Exchange Commission official to urge Congress to allow the agency to begin charging registered fund advisors for their own inspection exams.

Fleming, sworn in earlier this year to oversee the new “Office of the Investor Advocacy”, echoed similar calls for the charge made by Daniel Gallagher, one of five SEC commissioners, during a speech in May. Gallagher would need the support of at least two other commissioners to formally propose the rule.

Fleming’s support for the move may not come as a large surprise considering a newly-formed SEC Investment Advisory Committee, mandated by Dodd-Frank to advise the commission on new rulemaking, has already publicly backed charging investment advisers for examinations. By statute, as the SEC’s head investor advocate, Fleming is a member of that committee.

However in a report submitted to Congress last month Fleming raised the issue with lawmakers who are responsible for setting the SEC’s budget. “Optimally, we believe that SEC-registered investment advisers should be examined at least every three years on average,” the report said, adding “…no firm should go longer than five years without a comprehensive examination.”

In Washington DC, the Senate and House of Representatives released dueling fiscal 2015 budget proposals for the SEC.

The Senate version wants to increase the SEC’s budget to $1.7 billion for fiscal 2015, which begins this October, from $1.35 billion this fiscal year. The House version allows for a more modest $50 million budget boost.

The $1.7 billion budget would allow the agency to add 316 staffers to the agency’s current 914-strong team of inspectors responsible for examining registered advisers.

Fleming also likely has the support of SEC chairman Mary Jo White. During questioning at a recent House Financial Services Committee hearing, California Democrat Maxine Waters asked White whether or not levying user fees from investment advisors was a “scalable and usable” way for the commission to improve investor protection. White’s response was that the SEC’s examination program was a top priority for the agency and that the SEC’s current resources aren’t close to what the SEC requires.