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SEC to Decrease Exam Funding While Increasing Exams

Despite a decrease in funding for its exam unit, the agency expects to boost investment advisor exams by 5 percent in fiscal year 2018.

Securities and Exchange Commission Chair Jay Clayton presented the agency’s fiscal year 2018 budget to a Senate appropriations committee Tuesday morning. He’s requesting $1.602 billion, about flat compared with this year’s budget, and it includes a reduction in funding to its National Examination Program, led by the Office of Compliance Inspections and Examinations (OCIE).

The budget would provide $341 million for its exam program, down from $346 million in the current fiscal year.

Clayton said the agency is on track this year to examine 20 percent more investment advisors compared with fiscal year 2016, when it completed 1,600 exams. And he expects that number to increase a further 5 percent in fiscal year 2018. He attributed the increase to 100 SEC staff members who were reassigned to the national examination program’s investment advisor unit in 2016, as well as the introduction of efficiencies—specifically its risk-based approach.

“OCIE also will continue to bolster its risk-based approach to exam selection through the continued development of data analytics tools,” Clayton said. “These tools help us identify activities that may warrant further examination and efficiently focus our examination efforts.”

Funding for enforcement would be reduced from $518 million in the current fiscal year to $507 million in fiscal year 2018. Yet, Clayton pointed out that the enforcement and exam programs account for more than half of the requested budget.

During his testimony, Clayton said he was comfortable with the SEC’s current level of funding. But there may be areas that will need more funding next year he doesn’t know about today.

When asked about the fiduciary rule, Clayton said he expected the SEC to cooperate with the Department of Labor, which put out its own fiduciary rule.

“I don’t want to see any of these actions we would take to reduce access to investment advice, or reduce access to investment products,” he said. “I am confident we’re going to have cooperation in this regard.”

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