The White House on Monday proposed big budget boosts for U.S. financial market regulators, which are months behind in finalizing Dodd-Frank reforms and are under pressure to more vigorously police markets in the wake of the 2007-2009 financial crisis.
The Securities and Exchange Commission would get an 18.5 percent funding increase, while the Commodity Futures Trading Commission would receive a 50 percent rise in spending under the Obama administration's fiscal 2013 budget.
The SEC's budget would rise to $1.566 billion from 2012's budget of $1.321 billion, while the CFTC would see a spending jump to $308 million from $205 million. President Barack Obama also called for legislation to fund the CFTC through user fees, bringing it in line with most other financial regulators.
Without sufficient funding ... the nation cannot be assured that this agency can oversee the futures and swaps markets, that customers are protected, and that the public gets the benefit of transparent markets and lower risk, Gary Gensler, the chairman of the CFTC, said in a letter to lawmakers discussing the budget.
The Obama administration, under fire for a dearth of significant prosecutions related to the 2007-2009 financial and housing market meltdown, also called for adding $55 million to the Justice Department's proposed budget to prosecute financial crimes.
That would bring the proposed budget for such prosecutions to over $700 million, which would fund more FBI agents, prosecutors and forensic accountants. The overall discretionary budget for the Justice Department would go down less than 0.5 percent to $27.1 billion.
The proposal comes shortly after the president announced the creation of a new working group to further investigate misconduct in the pooling and sale of home loans during the financial crisis.
LONG WAY TO GO
The proposed budget hikes, however, are a long shot.
Republicans who control the House of Representatives have questioned funding boosts for regulatory agencies as they look to cut government spending and seek to throttle the implementation of the 2010 Dodd-Frank law by starving regulators of additional funds.
Last year, both the SEC and CFTC received far less than what they had requested.
There is still along way to go in the appropriations process and this is just the opening round, said Jim Overdahl, a vice president at NERA Economic Consulting, and a former chief economist at both the SEC and CFTC.
The proposed funding increase comes as the SEC and CFTC face a daunting to-do list.
In addition to facing major work on implementing new rules to oversee the over-the-counter derivatives market, the CFTC is also straining its limited resources to conduct an investigation into the October collapse of brokerage firm MF Global and the massive shortfall in customer money.
Both agencies are seeking to add staff and improve technology to meet the new regulatory responsibilities.
CFTC and SEC officials have warned that a lack of funding could hinder their ability to police the markets, implement new reforms and harm staffing levels.
Not everyone at the CFTC agreed with the spending plan's priorities.
In a dissenting statement from the 2013 budget request, Republican CFTC Commissioner Scott O'Malia said the proposal makes an unsubstantiated case for a massive expansion in staffing that is both unrealistic and unsustainable in this deficit environment.
Like the CFTC, the SEC is also still working to complete rules under the Dodd-Frank Act. Those new regulations expand its authority to oversee over-the-counter derivatives markets as well as credit-rating agencies and hedge fund and municipal advisers.
The SEC also is working on other projects unrelated to Dodd-Frank, including a series of reforms following the May 6, 2010, flash crash and the development of proposals to bolster capital formation for smaller businesses.
Confidence in the markets is important to economic growth and demands a strong investor protection agency. This additional funding will allow us to continue strengthening our enforcement and examination programs, SEC Chairman Mary Schapiro said in a statement on Monday.
In addition to the president's proposed SEC budget, Obama on Monday also called for obligating an additional $50 million into a special reserve fund created in the 2010 Dodd-Frank law that is financed with registration fees.
The money set aside in the reserve fund for 2013 would go toward modernizing the SEC's website and online database for corporate disclosure reports.
It would also be used to help the SEC develop a consolidated audit trail, or a system that would allow the agency to track all orders, messages and trades for the first time.
The consolidated audit trail has yet to be finalized by the commission. The bulk of the cost would be funded by the industry, although the SEC would still incur some costs in order to be able to actually make use of the data.
Recently, SEC Chairman Mary Schapiro backed away from a push to require real-time reporting of the trade data, in a move that is likely to save money on the project.
(Reporting By Christopher Doering and Sarah N. Lynch; Additional reporting by Jeremy Pelofsky; Editing by Neil Stempleman and Andrea Evans)