SEC told to reorganize and live within its means
House hearing on conflict-of-interest charges involving former general counsel leaves agency battling for public trust and increased funding.
The Securities and Exchange Commission needs more money to police Wall Street, according to the agency head and an independent report released on Thursday. The congressionally assigned report also asserted the agency could do a better job with resources it already has.
Without additional funds, SEC will not be able to implement many of the new rules it is writing as required under the 2010 Dodd-Frank financial reform law, Chairwoman Mary Schapiro warned during a joint hearing of two subcommittees of the House Oversight and Government Reform Committee. The hearing focused largely on ethics concerns regarding Schapiro's handling of former SEC general counsel David Becker, who worked on the agency's response to the Bernard Madoff Ponzi scheme even though he had inherited some money through a Madoff account.
Schapiro's long-standing quest for greater funding was supported by the report[pdf], which was conducted by Boston Consulting Group. It said Congress should either expand funding so SEC can meet expectations, or "change the SEC's role to fit available funding."
But the report also recommended SEC prioritize its regulatory duties to better allocate staff and resources. The commission should categorize its activities from those that are "critical to strengthen or commence" to those that could be scaled back, delegated, or flexibly regulated, it said.
The report also suggested SEC reorganize to improve efficiency and collaboration, an issue former SEC Secretary Jonathan Katz also expressed concern about during Thursday's hearing. Katz said organizational structure should correspond to the markets the commission regulates, but said current agency organization better reflected market structure in the 1970s, calling it a "historical artifact."
Schapiro welcomed the report, saying in a press release that SEC's chief operating officer would head a series of working groups on the report's recommendations. "I believe that investors need an SEC with added staff and better technology to properly police Wall Street," she said.
Schapiro told the lawmakers that outdated technology was hindering the agency from doing its job and no match for the sophisticated technology financial companies are using to monitor the markets. SEC has "too many [employees] doing low-value work because we don't have the technology," she said. "We need to be able to use data analytics to find the important information in [industry data], not have people plowing through all that information."
Schapiro defended the work SEC management has done during the past two years, saying she would have acted similarly if given the chance to start over. "I am pleased that the report recognizes the many initiatives we have taken over the past two years to increase the agency's efficiency and effectiveness," she told the hearing.