A regulator’s lot is not a happy one by all accounts. While the UK’s Conservative Party has promised to close the FSA and transfer its duties to the Bank of England if it wins the next election, US regulators at the SEC are having an equally tough time.
The Securities and Exchange Commission’s inspector general, H. David Kotz, has delivered his report (The IG Report) on the regulator’s failure to uncover the Madoff Ponzi scheme. As widely expected, the report is harshly critical of the agency’s lack of due diligence in responding to investors’ concerns about Madoff.
US politicians have been quick off the mark with calls for an overhaul of the SEC’s operational structure. New York Democratic Rep. Ed Towns, chairman of the House Oversight and Government Reform Committee has written to SEC chief Mary Schapiro asking for information about SEC staff’s “experience and capacity”. Commenting on the Madoff report Towns’ personal web page states: “The IG Report catalogues a shameful series of incomprehensible oversights, delays, and failures to follow-up, as well as a shocking lack of internal coordination and inaction in the face of clear malfeasance.”
As highlighted by the Institute of Policy Studies (http://blog.manifest.co.uk/?p=1651) the discrepancy between average salaries on Wall Street and the regulatory sector “breeds corrosive and ever-present conflicts of interest and encourages regulators to view Wall Street firms as lucrative future employers”.
The announcement from New York Democratic Senator Charles Schumer that he intends to introduce a bill to allow the SEC to keep all of the funds it generates from fees in order to fund its operations may go some way to addressing concerns about staffing. Schumer contends that his proposals could enable the agency to overhaul its technology and better recruit, train, and retain employees.
Unlike the Federal Reserve and the Federal Deposit Insurance Corporation, which use fees and other income to support their work, the SEC has to go through through a complex annual Congressional budgeting process. In 2007, the SEC generated more than $1.5 billion in fees but had a total operational budget of $882 million.