NEW YORK (Reuters) - The Securities and Exchange Commission needs to continue to grow to meet demand for more regulation on things like ratings agencies, derivatives, and swaps, Chairman Mary Schapiro said on Monday.
“We have to have sustained growth over the next several years to keep up with Wall Street,” Schapiro said in comments to a Financial Women’s Association event in New York City.
While some federal agencies have one person assigned to each entity they regulate, the SEC, which is the U.S. investor protection agency, has only 3,700 staffers for some 35,000 regulated entities.
Schapiro has been advocating a self-funding mechanism for the SEC as congressional financial reforms contemplate increasing the number of regulated companies the SEC oversees by getting hedge funds and private equity firms to register.
The financial reform bill could also give the agency new roles in the swaps market or overseeing credit rating agencies.
“From my perspective, the key is that we’re in a position to regulate the swaps desk,” Schapiro said, noting a proposal Democratic Senator Blanche Lincoln floated on Monday to allow banks to keep parts of their over-the-counter derivatives operations, while forcing spin offs of lucrative swaps dealing activities.
“I understand and appreciate the concern that I think animates the Lincoln provision and much of the bill, which is to not have such great concentrations of risk,” Schapiro told the audience at New York Law School, noting the need to manage capital and risks better in derivatives.
Schapiro said she had some “hesitation” about spinning off swaps desks, given the potential that reputational risks would remain at the banks.
Schapiro, who took the reins of the agency in January 2009, also discussed the new role the SEC could play in monitoring credit rating agencies.
“One of the fundamental problems is the business model,” Schapiro said, saying the system where issuers pay rating agencies to rate new products is “flawed” and didn’t perform very well in the financial crisis.
Under the Senate bill- a new board at the SEC would be created to match rating agencies with an issuer’s debt. But Rep. Barney Frank, the key lawmaker in charge of the final regulation bill, has proposed dropping that Senate provision in favor of a study on rating agency reforms.
“I think what (the proposal is) trying to do is break that bond between the issuance of a rating and compensation for the rating,” Schapiro said.
“My concern is that the public not believe that the government is now standing behind those ratings, because we won’t be.”
Schapiro made the comments a day before U.S. lawmakers are due to start finalizing rules for the rating agencies. Schapiro has consistently said there are conflicts of interests with the issuer-paid credit rating model.
Additional reporting by Rachelle Younglai in Washington