WASHINGTON Federal securities and commodities regulators said on Wednesday they need big budget boosts to police the vast derivatives market and to catch the next Bernard Madoff.
Fresh from getting modest budget increases for the current fiscal year, the Securities and Exchange Commission and Commodity Futures Trading Commission told a Senate appropriations panel they need hundreds of millions of dollars more to be effective post-financial crisis regulators.
Republicans seeking to weaken last year's Dodd-Frank financial oversight law, and rein in federal spending, are trying to block big funding increases.
"We are all aware of our budget deficit and fiscal constraints that will require all agencies to make decisions for how to allocate resources," said Republican Senator Jerry Moran of Kansas. "Simply increasing (their budget) does not ensure the agency can successfully achieve its mission."
SEC Chairman Mary Schapiro and CFTC Chairman Gary Gensler said the funds are critical to finalize -- and enforce -- dozens of new rules required by Dodd-Frank as a July implementation deadline looms.
In testimony, the regulators took great care to try to illustrate how they are working to save money and run more efficiently.
Schapiro said the agency is consolidating the functions of the Office of the Executive Director into the Office of the Chief Operating Officer. And in what she called a "quirky" example of cost-efficiency, she told lawmakers the SEC can save $375,000 a year on its alternative data center by making power changes.
The agencies are jointly tasked with sweeping new responsibilities to police the nearly $600 trillion over-the-counter derivatives market. In addition, the SEC has also been given increased oversight in other areas including hedge funds and municipal advisers.
The SEC is seeking a $222 million increase for its fiscal 2012 budget, beginning October 1, which would bring the total to $1.407 billion. The CFTC, meanwhile, is asking for an increase of $106 million, bringing its budget to $308 million.
Both agencies only just recently got very modest budget boosts for their fiscal 2011 budget following a roughly six-month budget impasse in Congress.
Schapiro told lawmakers the proposed budget boost would add an extra 780 new positions, about 60 percent of which would be for implementing Dodd-Frank provisions.
The money would also be used to revamp outdated technology, including an initiative to improve the processing and handling of tips and complaints following the embarrassing failure to catch convicted swindler Bernard Madoff.
Highlights of how the CFTC would use its proposed increase include creating a division to parse the reams of new data it will soon be collecting. Gensler said the division would help the agency improve its oversight and enforcement of the derivatives markets through the use of technology and data.
Both agencies are facing skeptical Republicans, however, who fear the CFTC and SEC are rushing too quickly to implement rules without first adequately weighing their economic impact. The agencies have worked to try to meet their deadlines, but have missed, or intend to miss, several.
Gensler said they will begin finalizing rules starting this summer, and phasing them in soon after. Schapiro told reporters the SEC will miss its July date for implementing "a large number of the derivatives rules."
The Senate hearing came as the Republican-controlled House Agriculture Committee voted to delay the implementation of regulations involving derivatives by 18-months.
Sponsors said this would allow regulators to collect more data and determine how the new measures will affect the market and the U.S. economy. The bill faces an uphill battle, especially in the Democratically-led Senate.
Gensler acknowledged that while the rule-writing process creates unintended uncertainty throughout the market, delaying the implementation would be a mistake.
"I think a delay ... would put the American public at risk," he said. Market participants "need to have confidence in the marketplace," he said.