Strained SEC calls for more examiners

As part of its 2013 budget request, the US Securities and Exchange Commission is seeking a 23 percent jump in manpower for its Office of Compliance Inspections and Examinations (OCIE), the division responsible for gathering data on and supervising private funds. 

Subject to a Congressional vote, the budget aims to add 222 employees to the OCIE, which would bring the office’s total staff count to 1,190. 

Should SEC budget negotiations reach an impasse, Congress may be more inclined to embrace the option of a self-regulating model for the private funds industry. Under this approach, self-regulating organisations (SROs) are financially supported by dues collected from the regulated, meaning no new taxes. 

Many in the industry have expressed preference for SEC oversight, as a SRO model would likely result in more aggressive oversight and more frequent examinations. The Financial Industry Regulatory Authority (or FINRA) has already positioned itself as a contender for the SRO role.  

For the 2013 fiscal year, the SEC is seeking $1.566 billion, a $245 million increase from the 2012 budget. 

Last year President Obama requested $1.407 billion for the agency, a target watered down to $1.321 billion after Congressional Republicans criticised the agency’s performance in implementing Dodd-Frank financial reform rules. 

“Without these additional positions, the increased complexity of the registered firms and the growing disparity between the number of exam staff and the firms could compromise the effectiveness and credibility of the Commission’s inspection and examination programs”, the SEC said in its budget request. 

“Our enforcement teams bring cases against firms that spend more on lawyers’ fees than the agency’s annual operating budget”.  

As part of Dodd-Frank, the SEC will shed some 3,200 small investment advisors from its remit, but the lightened workload will be offset by an estimated 700 private fund advisors registering with the agency before the end of March. 

In 2005, the SEC had 19 examiners for every $1 trillion in assets under management – a figure now overseen by 10 examiners. Consequently, examiners have been limited to inspecting a mere 8 percent of registered advisors, the budget request said. In comparison, FINRA examines about 55 percent of all broker-dealers under its watch, producing about 1000 disciplinary actions and $50 million in fines annually.

Overall, the OCIE will supervise an estimated 10,000 advisors, managing collectively $44 trillion in assets in 2013. A decade ago, the group was responsible for overseeing 7,600 advisors managing approximately $21 trillion in assets.