WASHINGTON — The Securities and Exchange Commission is considering scaling back its initial proposed definition of municipal advisor in final registration rules, the agency’s chairman said Wednesday.
In testimony before the House Financial Services Committee’s capital markets panel, Mary Schapiro said the SEC’s municipal advisor registration rules, which were proposed in late 2010, “cast the net too widely.”
“When we get to final rules, I think you will see that we have tailored the rules quite a bit,” she said. “I’m hoping that we will be able, at the end of the day, to strike the right balance.”
Schapiro said changes to the rule could include a narrowed definition of “investment strategies.” The current definition, she said, is “probably too broad, and includes activities that don’t necessarily need to be regulated by the SEC,” such as traditional banking and trust practices.
In addition, the commission could exclude unpaid and appointed volunteers from the rule, and might broaden the rule’s exclusion for underwriters, she said.
During the hearing, Schapiro also reviewed the SEC’s current priorities and defended its request for a fiscal 2013 budget of $1.566 billion, up $245 million from fiscal 2012.
Several lawmakers expressed concern that the scope of new and proposed SEC regulations, including those that would implement the Volcker Rule, could hinder business growth, job creation and economic recovery.
“The reason we are concerned about things like the Volcker Rule ... is [because] we want to put America back to work,” said Rep. Spencer Bachus, R-Ala., the chairman of the full committee. “What we are really saying is, 'Is this going to eliminate jobs.’ ”
Bachus and others, including Rep. Scott Garrett, R-N.J., also urged Schapiro to ensure the SEC considers the economic impact that its new rules would have on the financial industry. In June, Garrett introduced the SEC Regulatory Accountability Act, which would require the agency to conduct analyses of the costs and benefits of new rules.
Schapiro said the proposed new requirements could create additional burdens, but noted that in March the SEC’s chief economist and its general counsel issued guidelines to the staff about conducting cost-benefit analyses.
She said details of the guidance will not be publicly available until they are fully reviewed by the SEC commissioners.
Schapiro defended the commission’s budget request, saying the agency needs additional money to complete rulemaking required by the Dodd Frank Act. Since the act, the SEC has completed numerous market studies, started a whistleblower program and has written rules covering hedge funds, over-the-counter derivatives and municipal advisors, she said. The registration rules for municipal advisors are due out by the end of September.
The SEC has also worked on the Volcker Rule and the Jumpstart our Business Startups Act, which is designed to help small and start-up businesses raise funds, Schapiro said.
In addition, the commission is hiring additional staffers, including economists, and investing in information technologies and other systems.
“We are under-resourced to the tasks we have been given,” she said. “While the agency’s budget has grown in recent years, so has the agency’s responsibilities.”
Schapiro said the SEC “cares deeply about job creation,” but that the United States needs financial markets to “operate with integrity so that investors have confidence to invest, and companies [will] build jobs and build factories.”
The commission must strike a balance, she added, between the need for regulations and the need for an efficient financial system.
“Investing is risky, and it should be risky,” but not because of a lack of transparency or financial fraud, Schapiro said.
She also defended the SEC’s reliance on self-regulatory organizations, such as the Municipal Securities Rulemaking Board.
“In a time when there are constrained resources within the federal government, the ability to leverage a self-regulatory organization is really critical,” she said.
