SEC Chairman White testified before the Financial Services of the U.S. House of Representatives about the SEC’s agenda, operations and budget request. She began her testimony by reviewing the growth of the securities and asset management industries. She next reviewed the accomplishments of the SEC over the past year. Chairman White noted the launch of a powerful new analytical tool called MIDAS (Market Information Data Analytics System), which enables the SEC to analyze enormous amounts of trading data across markets almost instantaneously.
She covered the initiatives of each of the SEC’s divisions. The SEC’s Enforcement Division filed 686 enforcement actions in the fiscal year that ended in September 2013. The $3.4 billion in disgorgement and penalties ordered as a result of those actions was 10% greater than FY 2012 and 22% greater than FY 2011, when the SEC filed the most actions in agency history. She further noted that he SEC changed its long-standing settlement policy by now requiring admissions of misconduct in certain types of cases where heightened accountability and acceptance of responsibility by a defendant are appropriate and in the public interest.
The SEC in FY 2013 filed 140 actions against investment advisers. Several of these actions resulted from risk-based investigations, which are proactive measures to identify misconduct at an early stage so that timely action can be taken and investor losses minimized. These cases hold to account those finance professionals who abuse their position of trust by engaging in fraudulent conduct, misrepresent investment returns, or otherwise breach their fiduciary duty to their clients. The SEC also filed multiple actions arising from an initiative to identify investment advisers who lacked effective compliance programs and an initiative based on the detection of abnormal performance returns by hedge funds, as well as a number of actions involving violations of the custody rule.
She testified about OCIE’s never-before examined advisers initiative and presence exam initiative. In 2014, OCIE launched an initiative to engage with the roughly 20% of investment advisers that have been registered for three years or more, but have never been examined (the never-before examined initiative). This initiative includes both risk-assessment and focused reviews. The risk-assessment approach is designed to obtain a better understanding of a registrant and may include a high-level review of an adviser’s overall business activities. The focused review approach includes conducting comprehensive, risk-based examinations of one or more higher-risk areas, which could include, among others, the compliance program, portfolio management, or safety of client assets.
She next testified about the Large Firm Monitoring Program,” which focuses on certain large and complex firms that could pose significant risk to the various markets and to their customers, due to their size, complexity, and connectivity with other large firms and financial institutions.
She then discussed OCIE’s recruitment of industry experts to enhance the NEP’s technology and data analytics and thus advance its risk-based examination approach. In 2014, OCIE introduced the National Exam Analytics Tool (NEAT), which empowers examiners across the NEP to access and systematically analyze years of trading data in minutes. Such reviews previously were limited to months of trading data and took examiners weeks or more to complete. Additionally, in FY 2013 OCIE’s Risk Analysis Examination (RAE) initiative – which leverages technology to conduct cross-firm review involving large quantities of data – collected and analyzed millions of trading records from over 500 firms. Using this data, the RAE team identified a wide range of problematic behavior including, among other things: unsuitable recommendations, misrepresentations, inadequate supervision, churning, and reverse churning.
Next, she reviewed initiatives at the SEC’s Division of Trading and Markets, including more than 30 separate rulemaking initiatives and studies under the Dodd-Frank Act and the JOBS Act.
Chair White then discussed initiatives at the SEC’s Division of Investment Management, including private fund adviser, money market fund regulation and target date funds.
She then reviewed initiatives at each of the offices of the SEC:
- Office of Credit Ratings
- Office of Credit Ratings
- Office of Minority and Women Inclusion
- Office of Municipal Securities
- Office of International Affairs
- Office of the Chief Accountant
- Office of Investor Education and Advocacy
- Office of the Chief Operating Officer
Chair White concluded her testimony by discussing the SEC’s technology initiatives and reviewing the SEC’s proposed budget.
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