Reform bill could make “incoherent” SEC irrelevant
By Reynolds Holding
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
NEW YORK — At least one U.S. lawmaker seems to want the “incoherent” Securities and Exchange Commission to become irrelevant. The regulator has had its problems. But a Republican bid to reshape it seems designed to hinder, not help. There’s room for improvement, but with its duties growing, the self-funding watchdog needs more staff, more money and a buffer against Congress.
Many of the SEC’s wounds are self-inflicted. It missed several chances to nab Ponzi-schemer Madoff, missed the subprime mortgage time-bomb along with everyone else, caught staff members viewing pornography on office computers and had to back out of a wasteful $557 million office lease. But a Boston Consulting Group study found that the agency was also about 400 employees short and hampered by onerous union rules.
Increased responsibilities may aggravate the problems. The SEC just announced further delays in drafting rules implementing last year’s Dodd-Frank financial reform bill, which expands the regulator’s remit. And a federal court recently ordered the agency to do even more analysis of the costs and benefits of such regulations.
Congress has already responded with cuts. Instead of increasing the SEC’s 2012 budget to the requested $1.4 billion, lawmakers held it to this year’s $1.19 billion, saying they were committed to reducing costs. But the SEC is funded not by the government but by the fees it collects from regulated companies. It passes the excess to the Treasury.
Now Congressman Spencer Bachus seems to want to hold the SEC back further. His bill would demote the watchdog’s investor advocate and strengthen a new ombudsman for regulated businesses. It would also weaken the regulator’s clout by dispersing key staff throughout divisions that have historically sympathized with Wall Street.
A genuine bid to fix the SEC would try to excise the bits that don’t work. But it would also beef up databases and decades-old software. It would free the agency to hire hundreds of new people and fire incompetent staff, acknowledging that policing the risks and wrongdoing exposed by the financial crisis requires resources.
The SEC’s greatest flaw may be Congress’s tight control over how much of its revenue it can spend. Greater financial independence and perhaps a chairman serving longer than the current five-year term would be steps toward an agency capable of fighting for what’s needed, rather than just what’s politically possible in the short term.