Schapiro Details How the SEC Would Spend 2011 Budget
Information that should be of interest to anyone in an organization regulated in any way by the Securities and Exchange Commission: details from its chairman on how the agency plans to spend its resources in the coming fiscal year.
SEC Chairman Mary Schapiro took to the Hill this week to provide lawmakers with details on how the agency would use the President’s budget request of $1.258 billion for fiscal 2011.
If enacted, the 12 percent increase over the agency’s FY 2010 funding level would allow the SEC to hire an additional 374 professionals, bringing its total staff to just over 4,200, Schapiro said in March 17 testimony before a House Sub-committee. She noted that $24 million would be contingent upon the enactment of financial reform.
The budget request would allow the SEC to add 130 new professionals in the Enforcement Division, allowing it to open 75 additional inquiries, conduct 130 additional formal investigations, and file charges in 70 additional civil or administrative cases.
The Enforcement Division resources would be used to fully staff the new Office of Market Intelligence; hire enforcement staff with specialized expertise in financial products, additional trial attorneys, and administrative staff, and to provide staff training. Some of the funds would also be spent on information technology, including ongoing projects to improve the Division’s case management system and establish a centralized system for reviewing and analyzing tips and complaints. Future projects would include a state-of-the-art IT Forensics Lab, enhanced data and trading analytics, and improved document and knowledge management, Schapiro said.
The Commission would use the funds to add 70 staff in its examinations unit, which would allow its Office of Compliance and Examinations to conduct an additional 50 investment adviser exams and 25 mutual fund exams, and to staff the oversight function for credit rating agencies, half of which would be examined in FY 2011. Schapiro also noted that if the financial regulatory reform legislation requires hedge fund advisers to register, the SEC will begin to build an inspection program in that area. Even with the additional resources, she said the SEC anticipates examining only 9 percent of registered investment advisers and 17 percent of investment company complexes in FY2011.
The funds would also enable the Commission to add 20 new professionals in its Division of Risk, Strategy, and Financial Innovation, almost 50 positions to the Divisions of Investment Management and Trading and Markets, and 25 professionals to the Division of Corporation Finance, Schapiro said.
Finally, Schapiro said the budget request proposes to spend an additional $12 million on information technology investments, with the third phase of the new system for analyzing tips, complaints, and referrals as the top priority. That effort will add risk analytics tools to help identify high-value tips and search for trends and patterns.
The SEC completed part of that effort—centralizing its existing tips and complaints into a single, searchable database, and this week released a set of agency-wide policies and procedures to govern how employees should handle the tips they receive, Schapiro noted.
Other efforts would include building a suite of surveillance and risk analysis tools, completing improvements to the case and exam management tools, modernizing the agency’s financial systems, implementing a new system to handle an increase in the volume and complexity of evidentiary material obtained in investigations, and tools to improve the efficiency of loading, storing, and archiving the data obtained in investigations.
Schapiro noted that the proposed increase in spending would be offset by the fees collected on transactions and registrations. In FY 2011, the SEC estimates it will collect $1.7 billion, an increase of $220 million over FY 2010.








The bulletin benefits issuers that meet the specified criteria, since they won’t have to seek no-action relief, and the SEC staff, which won’t have to review and respond to those requests.
“From a company standpoint, the process is very opaque,” says Morgan. “Their processes need to be more out in the open.”
“Of course, it’s much easier to plan with a definite timeline and goal in sight, but the Webcast survey does show that many companies continue to move forward with plans for implementing IFRS,” says Janice Patrisso, partner and National IFRS Leader at KPMG. “I think the SEC was clear that it continues to support development of a globally accepted set of accounting standards. To that end, they are working to ensure the path to the incorporation of IFRS into the U.S. financial reporting system is smooth and well planned.”
In that case, the staff’s interpretation departs from strict adherence to the accounting treatment for the award to better reflect the compensation committee’s decisions, but Mary Alcock, counsel in the law firm Cleary Gottlieb Steen & Hamilton, notes that the interpretation “seems limited to a specific, and in some ways extreme, set of circumstances,” since negative discretion isn’t often used in the context of equity awards.
Boehme says the Guidelines not only incorporate the key principles of the Federal Sentencing Guidelines—including strong senior management tone and action, clear standards, protocols and internal controls, communication and training, and effective, appropriate disciplinary procedures—but in some respects, she says the guidelines “reach even further to validate the concepts of independent oversight and empowerment for the chief compliance officer.”
“In general, the first quarter is typically the quarter with the fewest settlements, and the end of the fiscal year tends to be a very active period with a lot of settlements,” Elaine Buckberg, NERA senior vice president and one of the report’s authors, tells Compliance Week.