The U.S. capital markets are the broadest, deepest, most liquid markets in the world. Their success is due largely to foundational securities laws passed nearly a century ago, coupled with an extensive regulatory framework, and the SEC’s work in implementing and enforcing those laws and rules, which underpins a thriving financial system and economy.
However, to be an effective cop-on-the-beat, the staffing levels at the SEC have not kept pace with the growth of U.S. capital markets, entry of new market participants, and new challenges posed to market surveillance and regulation since 2020. Despite the seemingly overwhelming responsibilities of the agency, and its resource challenges, the SEC has performed admirably especially considering that staffing levels of the agency have been at or below FY16 levels. The SEC’s FY23 budget enabled the agency to finally catch up to those FY16 staffing levels.
Over the past decade, the scope and breadth of the SEC’s responsibilities have increased dramatically, while the agency’s funding has failed to keep pace. The SEC is charged with overseeing vast swaths of our $100 trillion capital markets, including 24 national securities exchanges, 99 alternative trading systems, 10 credit rating agencies, 7 registered clearing agencies, 5 SROs, 29,000 issuers, 15,000 registered investment advisers who advise 50 million investors, and 16,000 investment companies. In addition the SEC is responsible for addressing issues in markets as they arise, which over the past few years in particular were numerous and complex. They included market disruptions in U.S. Treasuries markets in 2020, the rise and fall of SPACs, the meme-stock volatility in 2021, the fall of Archegos, emergence of cryptocurrencies, investor demands for greater ESG disclosures, and evolving cybersecurity risks. The examinations and enforcement programs consume roughly half the SEC’s budget, yet they are critical to the SEC’s mission and must grow along with the rising number of registrants and the increasing level of trading activity in the capital markets.
To continue overseeing the growing and ever-more complex markets, and to address numerous longstanding problems, the SEC must have additional resources at its disposal. And they can be provided without putting added pressure on the federal budget: Through securities transaction, registration, and other fees, the SEC generated over $2.4 billion in revenues for the government in the last fiscal year. This is in addition to the $6.4 billion recovered in penalties and disgorgement through enforcement actions last year, much of which goes to countless injured investors, with a portion also typically sent to the Treasury.
Fortunately, the FY23 appropriations fully funded the agency’s budget request, enabling the agency to hire more staff and catch-up to the growth in the markets over the past few years. Fully funding the SEC’s budget request in FY24 would further enable the agency to carry out their congressional mandate to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.
