Thursday, August 4, 2011

House Financial Services Committee Chairman Aims To Restructure SEC

On August 2, chairman of the House Financial Services Committee, Rep. Spencer Bachus, announced his intention to “modernize” the Securities and Exchange Commission. He plans to introduce the SEC Modernization Act, which will consolidate certain SEC offices and institute managerial and ethics reform.

Bachus is responding to his view that the SEC is structurally flawed, which results in operational inefficiencies. According to Bachus’ announcement, the forthcoming Act purportedly will address those issues making the agency “more efficient, consolidate duplicative offices, enable the agency to use better technology, and strengthen ethical safeguards to avoid conflicts of interest.” Despite clamoring from the SEC for additional funds, Bachus contends that additional funds will not make the agency improve performance unless these key flaws are fixed.

The draft proposal expressly amends four provisions of the Dodd-Frank Act (Sections 342, 915, 965, and 991). Such amendments would combine the Office of Compliance, Inspections and Examinations; the Division of Trading and Markets; and the Division of Investment Management. As well as consolidate the Divisions of Corporate Finance, Enforcement, Investment Management, and Trading and Markets.

According to a press release from the Financial Services Committee, the draft also makes managerial and ethics reforms, including combining the functions the Executive Director and the Chief Operating Officer, requiring the Office of Ethics Counsel to develop a system for tracking employee recusals, and restore an independent ombudsman.

John Nester, a spokesman for the SEC, responded that such changes should come internally and not imposed legislatively because internal reforms can be more readily adapted to evolving market dynamics. He also stated that the SEC is “actively reviewing a number of similar recommendations from the Boston Consulting Group study to evaluate improvements in the structure, operations, and processes of the agency.”

More detailed information regarding this draft proposal can be obtained from the House Financial Services Committee website.

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