Regulation plagued by politics

Jim McTague‘s latest “D.C. Current” column in Barron’s takes congressional Republicans to task for playing politics with the Securities and Exchange Commission, though McTague admits that the GOP has some legitimate gripes about the federal regulators.

On Jan. 13, the divided Congress, in a rare compromise, passed a $1.1 trillion spending agreement for fiscal-year 2014. The deal increases the budget for the SEC by $29 million, to $1.35 billion. The budget gives the SEC a pass on $66 million in sequestration cuts, but directs it to spend $44 million improving its cost/benefit analysis of new regulations. It also forbids the agency from spending half of a $50 million reserve fund created under Dodd-Frank and largely used for technology. The latter spending diktat does not reduce the deficit; it merely forces the SEC to find other funds for tech spending.

Dodd-Frank was quickly concocted by a Democratic Congress and signed into law by President Barack Obama in 2010, with little Republican input. Members of the House GOP felt the law was ill-conceived and overly punitive. Some GOP members of the House Appropriations Committee, like Chairman Hal Rogers of Kentucky, have been waging a war of attrition on it ever since by denying regulators the money they claim to need to enforce its provisions. The SEC estimates it requires an unfettered $1.4 billion annually.

IN 2010, THE SEC ASKED CONGRESS to allow it to be self-funded, like the Federal Deposit Insurance Corp., so it would no longer be a pawn in budget battles. Congress refused, but as a consolation prize authorized the SEC to amass a predictable pile of money for multiyear projects. Republican Sen. Richard Shelby of Alabama offered this gift as a House-Senate conference committee hammered out a final version of the bill. The SEC can raise up to $50 million a year from securities transaction fees for the reserve fund. The total pot is capped at $100 million. The agency can spend the money any way it wants, but has used it almost exclusively for new technology.

Republicans on the House Appropriations Committee disdain the idea of the SEC being able to spend up to $100 million without Congressional oversight. They wanted to prohibit use of the fund entirely, but settled on a $25 million restriction in the way of a spending compromise.

And who can blame them for feeling that way? This is the SEC that never had Bernie Madoff on its radar. Two months after the May 2010 Flash Crash, instead of investing in technology, it entered into a 10-year, $50-million-per-year lease agreement for space it did not need.

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