As long as I can remember, the SEC’s budget has been a political football. Despite the SEC’s earnest requests for self-funding over the years (the SEC has traditionally netted enough cash from its operations to actually fund its own budget and more), Congress has chosen to keep control of the purse strings as a means to maintain some control over the agency’s regulatory direction. The practical result of this is that the SEC, like many government agencies, is perennially underfunded for the enormous task that it faces.
Earlier this month, the House Financial Services Committee considered the SEC’s mission and budget and heard from Chair Gary Gensler. The Majority Staff memorandum regarding the hearing notes that the SEC’s fiscal year 2023 budget request of $2.169 billion reflects an 8.8 percent increase from fiscal year 2022 “in order to address key priority areas” and “is needed to hire additional agency personnel to oversee increasingly complex and growing financial markets that are expanding across borders and asset classes, including digital assets.” Congresswoman Maxine Waters (D-CA), Chairwoman of the Committee, told Gensler at the hearing: “You have a lot to restore and rebuild. During the Trump Administration, the Commission provided minimal oversight and eliminated key protections for investors.”
The Committee considered a number of pieces of legislation and potential legislation related to the SEC’s mission, including the following:
H.R. ___, Strengthening the Office of Investor Advocate. This discussion draft will strengthen the independence and increase reliability of the funding of the SEC’s Office of Investor Advocate. It would also authorize this office to conduct investor testing and other research, and publicize its findings.
H.R.___, Investor Justice Act of 2021. This discussion draft would create a grant program, administered by SEC’s Office of Investor Advocate, to support investor advocacy clinics.
H.R.___, Empowering States to Protect Seniors from Bad Actors Act. This discussion draft would create a grant program—similar to the one created by the Dodd-Frank Act’s Sec. 989A, which has not been implemented, housed within the SEC Investor Advocate Office to support and strengthen states’ senior investor protection programs.
H.R.___, To amend the Securities Exchange Act of 1934 to improve the governance of multiclass stock companies, to require issuers to make annual diversity disclosures, and for other purposes. This discussion draft would establish minimum listing standards for the stock exchanges in two areas of corporate governance: (1) multiple classes of stock with unequal voting rights, and (2) board diversity. The discussion draft would also require newly listed companies that choose to have multi-class stock structure to also include a seven year sunset provision for that multi-class stock structure, eventually leading to “one share, one vote.”
H.R. 2620, Investor Choice Act of 2021 (Foster). This bill would prohibit financial professionals from requiring their clients into pre-dispute arbitration agreements and ban prohibitions on class action lawsuits in customer contracts that investors often are required to sign in order to receive services from broker-dealers or investment advisers.
H.R.___, Whistleblower Protection Reform Act (Green). This bill is identical to H.R. 2515, which passed the House in 2019 on suspension. It would protect whistleblowers against retaliation, including individuals (1) who blow the whistle internally; (2) who assist in an SEC investigation of these violations, or (3) make disclosures that are required or protected under any law subject to SEC jurisdiction. Currently, these anti-retaliation protections apply only to individuals who report information directly to the SEC.
H.R.___, To prohibit registered investment advisers, brokers, and registered representatives of brokers from facilitating the transaction of or recommending the securities of certain special purpose acquisition companies, and for other purposes. This discussion draft would prohibit brokers and investment advisers from recommending to retail investors SPACs that grant high percentage of “promote” to the sponsors—a compensation arrangement that offers free shares to the sponsors of the SPACs. Currently, SPAC sponsors receive 20% or more in “promote,” which dilutes the shares of retail investors.
– Dave Lynn