President Bush proposed last Monday a $913 million budget for the Securities and Exchange Commission, one that would represent a 13% increase in available funds for the regulatory agency.

The budget consists of $893 million in new budget authority and an anticipated $20 million surplus from the previous year. The increased bankroll would enable the SEC to hire 106 new employees in fiscal 2005 to further advance its management and operational initiatives. The new hires represent $18.7 million of the total budget.

The SEC received $841 million in 2004, a sizeable increase from fiscal 2003, but wasn't able to spend the total amount, thus prompting the agency to return $30 million. Rules governing civil servants hindered its efforts to bring new staff members on board, but Congress has since passed a law that simplifies that process.

SEC officials said the money would help them keep pace with the widening mutual fund scandal as well as other problems plaguing Wall Street. The 106 employees being added in fiscal 2005 are in addition to the 842 positions approved in fiscal 2003, which are likely to be completed at the end of the current fiscal year.

"We are obviously still hiring. We have not hired all that we hoped to at this point," said SEC Executive Director James McConnell. "We have done quite well in attorneys and examiner hiring - that has not been a problem. We are still falling behind and not doing nearly as well as we would like with respect to hiring accountants, especially those with public accounting experience."

Peter Derby, managing executive to the chairman for operations, added, "We still need over 120 accountants."

The staff allocation includes 44 employees in investment management regulation, 30 employees in the prevention and suppression of fraud, and another 30 to augment regulation of securities markets. Two staffers will also be added to the Office of the Inspector General. The beefed-up staff would be used to build on initiatives already underway, including enhanced oversight of mutual funds and market reform initiatives. Additionally, if the Commission decides to go ahead with plans to require hedge fund advisors to register with the agency, the new hires will oversee that process as well.

The added dollars would allow the SEC to spend more money on information technology, create the new Office of Risk Assessment and Strategic Planning (see MME 11/24/03), and institute risk-based disclosure reviews and compliance inspections and exams. The agency will develop a comprehensive, multi-year strategic plan that will oversee its investments in document management, disclosure review and other key IT initiatives.

The new $2 million risk assessment division will serve to identify risks that threaten the SEC's ability to police the securities industry. The increased budget will also enable the Commission to review larger and higher-risk companies and registered representatives more frequently in order to stave off problems before they become widespread.

The appropriations would also enable the SEC to relocate to its previously announced new headquarters at Station Place and keep its salaries competitive with other government agencies. The SEC is requesting $32.3 million to cover the move to a new home base along with higher rates for rental space at other regional facilities.

Another major slice of the new money is being set aside to help retain employees. Specifically, the budget request includes $16.9 million for merit pay raises and another $6 million for a standard 1.5% pay increase, effective January 2005.

The Investment Company Institute, the fund industry's largest trade association, applauded the plan to bolster funding for the SEC, calling it an "important and necessary proposal" that underscores its long history of strongly supporting increased resources for the regulatory agency.

In the spring, Chairman William Donaldson will testify before Congress in support of Bush's budget request.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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