Washington Post
The financial regulation law signed by President Obama on Wednesday will arguably affect no federal agency more than it does the Securities and Exchange Commission.
The SEC is required to issue 95 new regulations governing a wide swath of the financial sector, dozens more than the Federal Reserve, the new Consumer Financial Protection Bureau or other federal agencies. The SEC is also slated to complete 17 one-time studies and five new ongoing reports, according to a tally by the law firm Davis Polk & Wardwell.
The SEC will serve on the new Financial Stability Oversight Council, a new interagency body meant to spot emerging risks to the overall financial system. It will have to write rules to supervise the multibillion-dollar market of derivatives linked to stocks and bonds. It will begin examining the activities of hedge funds and private equity firms and tighten oversight of credit-rating agencies. And it will do studies of short selling and whether brokerage and investment firms must meet higher standards.
Perhaps only the Office of Thrift Supervision can compete with the SEC in terms of the new law's impact. But in contrast to the SEC, which is gaining so many new responsibilities, OTS, which regulated home lenders, is being abolished.
Indeed, the SEC is coming out of the financial regulatory overhaul far stronger than many observers of the agency might have anticipated. The SEC was the object of much criticism -- on Capitol Hill, Wall Street and elsewhere -- for multiple regulatory failures, from oversight of investment banks to the Ponzi scheme orchestrated by Bernard Madoff.
"There was a point in time when things were not looking good for the SEC. People were asking whether it should be merged with another agency," said Marc S. Gerber, a securities lawyer at Skadden Arps. "But with the leadership led by Mary Schapiro, they were able to right the ship and get the SEC on course and improve their standing in Congress, so they were able to get these new responsibilities."
More tasks for agency
Before the financial reform law, the SEC already had a full plate. It is working to implement or finalize nearly 20 new regulations covering areas ranging from money market funds to high-speed electronic trading. It is also conducting numerous investigations growing out of the financial crisis and is in the early stages of implementing many internal reforms in its enforcement and examination divisions.
The agency's new tasks are just as onerous. Schapiro said at a congressional hearing Tuesday that the SEC will have to hire 800 new employees.
"The act requires the SEC to promulgate a large number of new rules, create five new offices, and conduct multiple studies, many within one year," Schapiro told Congress in prepared testimony. "The importance and complexity of the rules coupled both with their timing and high volume and the rule writing agenda currently pending will make the upcoming rule writing process both logistically challenging and extremely labor intensive."
SEC officials say they will look to write rules and conduct studies as fast as they can with the schedule largely dictated by the new law.
Some of the new rules the SEC will implement on its own. Others will require coordination with other agencies. For example, the SEC must work with the Commodity Futures Trading Commission to write rules for derivatives. The agency must work with the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. to write rules requiring that banks that issue securities to the secondary market hold 5 percent of the investment on their own balance sheets -- a "risk retention" measure.
While the new law imposes many new responsibilities on the SEC, it also makes the agency's job easier in several ways. One is offering more explicit support for some of the more controversial rulemaking efforts the SEC had already launched.
For example, the SEC has proposed rules that would make it easier for shareholders to join together to nominate directors to sit on the boards of public companies. But business interests generally oppose "proxy access" and have threatened to sue if the SEC implements the rules.
The legislation, which makes clear that the agency has the power to write rules granting this power to shareholders, makes the threat of lawsuit less ominous. "For a number of years people have questioned whether the SEC has the authority to adopt proxy access," Gerber said. "That question has been answered."
New enforcement powers
The law also gives the agency's enforcement division new powers to conduct investigations and bring lawsuits against companies and people accused of committing financial wrongdoing. It will be easier for the SEC to serve lawsuits and subpoenas and to bring cases in a more favorable and less expensive regulatory court. The agency will also have a new ability to reward whistleblowers who provide information that's essential to a case.
The law gives the agency plenty of new financial support -- but not as much as the agency wanted. It doubles the agency's budget over five years and also creates a reserve fund the agency can use to plan long-term expenditures such as technology. But the agency wasn't given the power to fund itself through industry fees, as it had wanted.