The broadest shake-up in U.S. financial services law since the Great Depression will likely require the Securities and Exchange Commission to beef up its staff with 800 new positions, the SEC’s chief said in prepared remarks on Monday.
Carrying out these new responsibilities will be “logistically challenging and extremely labor intensive,” SEC Chairman Mary Schapiro said in testimony prepared for a House of Representatives subcommittee hearing to be held on Tuesday.
President Barack Obama plans to sign the overhaul this week, giving the SEC sweeping new powers including joint oversight over the $615 trillion over-the-counter derivatives market and supervision of advisers to hedge funds and private equity funds. For a factbox, see:
The agency now has about 3,800 employees, with the Obama administration’s 2011 budget request allowing for a staff boost of about 374 professionals, Schapiro said.
Obama-appointed Schapiro is also likely to be probed about the SEC’s $550 million historic settlement announced last week with Goldman Sachs, over government charges the banking titan committed fraud when marketing a complex mortgage product.
She touted Goldman’s admission that its marketing materials contained incomplete information, and the bank’s acquiescence to tightening internal controls.
Although a tiny slice of Goldman’s profits, many saw the deal as a win of sorts for the agency, which has been embattled in recent years for failing to catch securities fraud and oversee investment banks ahead of the 2008 financial meltdown.
Lawmakers at the subcommittee on capital markets of the House financial services committee will also likely ask Schapiro about the May 6 market crash, when the Dow Jones industrial average briefly dropped nearly 700 points.
In the aftermath of the crash, the agency adopted new single-stock “circuit breakers” that pause trading when a stock moves 10 percent within five minutes. It is also studying other options to protect investors when markets are in freefall, including market-wide curbs that would be applied across markets.
Schapiro said the next period at the agency “will be dominated by” implementing the new law, known as Dodd-Frank, for Senate Banking Committee Chairman Christopher Dodd and House Financial Services Committee chairman Barney Frank, the bill’s main co-authors.
Regulators from the SEC to the Federal Reserve looking at how to implement their new responsibilities under the law.
The SEC will have to create five new offices and carry out several studies as part of the law, some within a year of the bill passing.
Other new authorities include a mandate to adopt new rules on shareholder rights, including giving shareholders a nonbinding vote on executive pay and a directive to study whether brokers should have fiduciary duties, a requirement to put their clients’ interests first.
The reform bill also directs the SEC to study the big credit rating agencies like Moody’s Corp and Standard & Poor’s and Fitch Ratings and to rule on whether further oversight is needed.
The big three rating agencies are paid by the issuers whose debt they rate, setting up a potential conflict of interest. If the regulator does not find an alternative, the SEC will be charged with implementing a Senate proposal for the SEC to set up a board to match credit raters with debt issuers.
The SEC will also have a seat on the new Financial Stability Oversight Council, set up under the bill to monitor systemic risk in the financial system.
