SEC Chair Gary Gensler: "Without additional resources, the oversight of markets is at risk. Our ability to find bad actors is at risk. Our responsiveness to market participants is at risk."

Today, SEC Chair Gary Gensler appeared before Congress to give testimony before the Subcommittee on Financial Services and General Government.

According to Gary, the U.S. capital markets have seen significant growth and increased participation from everyday investors. Currently, 58% of U.S. households own stocks, up from 52% in 2016, and about 121 million individual investors own registered funds. This has contributed to the registered and private funds sectors surpassing the banking sector in size.

Additionally, Gary notes the U.S. debt capital markets play a crucial role, facilitating 75% of debt financing for non-financial corporations, a stark contrast to the 12-29% raised in capital markets in Europe, the U.K., and Asia. The number of registered investment advisers has also grown, with 15,400 advisers managing significant assets for 57 million clients, compared to 12,000 advisers and 43 million clients in 2016.

The SEC oversees a vast array of entities, including over 40,000 entities such as registered funds, investment advisers, broker-dealers, exchanges, and regulatory organizations. The public markets are robust, with 7,400 actively reporting issuers and more than 4,000 companies listed on U.S. exchanges.

Gary calls out the growth in separately managed accounts is notable, with numbers increasing from 37 million in 2018 to 54 million today. Transaction volumes in listed equities have also seen a significant rise, doubling in the last five years and tripling in the last 17 years. Despite the increasing workload and higher volume of tips, complaints, and referrals—rising from 16,700 in 2019 to over 40,000 in 2023—the SEC has maintained low staff attrition rates, averaging around 3% annually, and remains one of the best places to work in the federal government.

Budget Request:

• President’s FY 2025 request: $2.594 billion for SEC operations.
• Supports 5,621 positions and 5,073 full-time equivalents (FTEs).
• Additional $8.4 million requested for General Services Administration (GSA)-led real estate projects.
• SEC funding is deficit-neutral; appropriations offset by transaction fees.

Agency Growth and Challenges:

• Despite significant market growth, the SEC shrank from 2016 to 2022.
• Congress authorized hiring 400 people in FY 2023, modestly increasing staff from 2016 levels.
• Flat funding for FY 2024 while market activity grew significantly.
• Budget distribution: 70% staff, 15% technology, 5% facilities, 10% other expenses.
• Flat funding results in cuts to staffing, technology, and real estate.

Staffing and Operational Impact:

• Paused nearly all job postings and backfilling at the start of FY 2024.
• Currently 300 positions below the level authorized for FY 2023 and FY 2024.
• Majority of staff focuses on day-to-day market oversight and public inquiries.
• Reduction in staffing impacts responsiveness and market protection capabilities.

Technology and Facilities:

• IT spending cut by roughly a quarter in FY 2024, delaying cloud transitions and system modernizations.
• 275,000 usable square feet shed from SEC’s real estate footprint from FY 2021 to FY 2024.
• Vacated one headquarters building in Washington, D.C., saving $14 million per year.
• Announced closure of Salt Lake City office in early FY 2025.

Divisions and Offices:

• SEC has 30 Divisions and Offices across 11 regional locations and Washington, D.C. headquarters.
• Budget requests summarized for six Divisions with further details in the FY 2025 Congressional Budget Justification.

Enforcement and Examinations:

• These divisions account for more than half of the SEC’s staff.
• Essential for instilling market trust by examining registrants and enforcing rules.
• Reducing fraud, manipulation, and abuse lowers systemic risk and protects investors.

Division of Enforcement:

• Received over 40,000 tips, complaints, and referrals in FY 2023, a 13% increase from FY 2022.
• Brought 784 enforcement actions in FY 2023, a 3% increase from FY 2022.
• Filed 501 original enforcement actions, an 8% increase from the prior year.
• Resulted in $4.9 billion in penalties and disgorgement, with $930 million distributed to harmed investors.
• Addressing misconduct in new areas like crypto requires more tools, expertise, and resources.
• FY 2025 request to increase team by 27 FTEs to 1,447, enhancing capacity to tackle complex investigations and litigations.

Division of Examinations:

• Conducted over 3,100 examinations in FY 2023 to ensure legal compliance among registrants.
• Covers investment advisers, broker-dealers, and exchanges, focusing on legal obligations to customers.
• Examines a growing population of over 15,400 investment advisers and approximately 800 investment company complexes.
• Works with SROs to examine over 3,300 broker-dealers with about 150,000 branch offices.
• Limited resources stretched thin, requiring growth to keep pace with market participants.
• FY 2025 request to increase team by 20 FTEs to 1,156, addressing emerging cyber and information security risks.

Programmatic Divisions:

Corporation Finance:

• Oversees disclosures of new issuers and public companies for informed investment decisions.
• Ensures useful, timely, and accurate disclosures for investors.
• Reviews registration statements and filings for timely feedback to issuers.
• Oversees over 7,400 active reporting companies, up from 6,800 in 2020.
• Reviewed filings of over 3,700 reporting companies and new issuers in FY 2023.
• FY 2025 budget request to increase team to 447 FTEs, still 30 FTEs below 2016 level.
• Additional resources needed to better serve investors and issuers as markets grow.

Investment Management:

• Oversees 13,000 registered funds and 15,400 investment advisers managing assets for 57 million clients.
• Significant growth in both registered and private funds markets, larger than the banking sector.
• More than half of American households (over 115 million individual investors) own registered funds.
• Reviewed over 4,200 annual and periodic reports and more than 8,600 total portfolios and insurance contracts in FY 2023.
• FY 2025 request to grow the division by nine FTEs to a total of 237.

Trading and Markets:

• Maintains fair, orderly, and efficient markets, especially during market stress.
• Oversees 24 national securities exchanges, 103 alternative trading systems, 3,300+ broker-dealers, 51 security-based swap dealers, six registered clearing agencies, and 200+ transfer agents.
• Responded to over 16,000 public inquiries and reviewed more than 660 broker-dealer filings and 1,700+ SRO proposed rule changes in FY 2023.
• FY 2025 request for 14 additional FTEs, totaling 293, to support market supervision.

Economic and Risk Analysis:

• Provides impartial economic analyses for rulemaking, considering costs, benefits, efficiency, competition, and capital formation.
• Receives public feedback on economic analyses, benefiting rulemaking and markets.
• Assists Enforcement staff with identifying wrongdoing, assessing ill-gotten gains, and returning funds to harmed investors.
• Identifies and responds to economic and market issues, including new financial products, strategies, systemic risk, and fraud.
• FY 2025 request to support 196 FTEs, adding one additional FTE.

Technology:

• Requested $457 million for information technology.
• Funds to support:CybersecurityCloud migrationModernization of key systems like EDGARImplementation of the Financial Data Transparency ActOther critical IT needs
• Assumes full use of an additional $50 million from the SEC Reserve Fund for multi-year IT projects.
• Context: SEC's IT spending is much smaller compared to monthly technology expenditures of some major market participants.
• SEC is cutting its IT program by about 25% this fiscal year due to budget pressures.
• Delayed technology upgrades, cloud migrations, and data analytics enhancements.

TLDRS:

• Today, SEC Chair Gary Gensler appeared before Congress to give testimony before the Subcommittee on Financial Services and General Government.
• "Without additional resources, the oversight of markets is at risk. Our ability to find bad actors is at risk. Our responsiveness to market participants is at risk."
• Gary noted The U.S. capital markets have seen significant growth with 58% of households owning stocks and 121 million individual investors in registered funds, surpassing the banking sector in size.
• The SEC oversees over 40,000 entities and has seen a notable increase in separately managed accounts and transaction volumes, while maintaining low staff attrition despite a growing workload.
• The President's FY 2025 budget request for SEC operations is $2.594 billion, supporting 5,621 positions and 5,073 FTEs, with an additional $8.4 million for GSA-led real estate projects, and funding offset by transaction fees.
• Despite significant market growth, the SEC's flat funding for FY 2024 has led to cuts in staffing, technology, and real estate, with a notable pause in job postings and backfilling, leaving the agency 300 positions below authorized levels for FY 2023 and FY 2024.
  • In FY 2023, the Division of Enforcement received over 40,000 tips, brought 784 enforcement actions, and secured $4.9 billion in penalties and disgorgement, while the Division of Examinations conducted over 3,100 examinations, necessitating an increase in staff to handle growing market complexities and cyber risks.
  • Corporation Finance: Oversees disclosures for informed investment decisions, with over 7,400 active reporting companies and more than 3,700 filings reviewed in FY 2023; FY 2025 request to increase team to 447 FTEs.
  • Investment Management: Oversees 13,000 registered funds and 15,400 investment advisers for 57 million clients; FY 2025 request to grow the division by nine FTEs to 237.
  • Trading and Markets: Ensures fair, orderly markets, overseeing 24 exchanges, 103 alternative trading systems, and 3,300+ broker-dealers; FY 2025 request for 14 additional FTEs, totaling 293.
  • Economic and Risk Analysis: Provides economic analyses for rulemaking and assists enforcement; FY 2025 request to support 196 FTEs, adding one additional FTE.
• SEC requested $457 million for IT to support cybersecurity, cloud migration, modernization of key systems like EDGAR, and implementation of the Financial Data Transparency Act, plus an additional $50 million from the SEC Reserve Fund for multi-year projects.
• Due to budget pressures, SEC is cutting its IT program by 25% this fiscal year, causing delays in technology upgrades, cloud migrations, and data analytics enhancements.