U.S. Securities & Exchange Commission’s Appropriations for Fiscal Year 2001

Submitted to the Subcommittee on Commerce, Justice, State, the Judiciary & Related Agencies of the House Committee on Appropriations U.S. House of Representatives

Statement of  
Investment Company Institute 

March 29, 2000

The Investment Company Institute¹ appreciates this opportunity to submit testimony to the Subcommittee in support of the FY 2001 Appropriations request for the Securities and Exchange Commission (SEC). The Institute would like to commend the Subcommittee for its past efforts to assure adequate resources for the SEC.

Mutual funds are an integral part of the U.S. economy and have become one of America’s primary savings and investment vehicles. More than 78 million investors in over 48 million U.S. households own mutual fund shares today and, since 1990, the percentage of U.S. retirement assets held in mutual funds has more than tripled. Moreover, most mutual fund investors are ordinary Americans; the median household income of fund shareholders is $55,000. These millions of average Americans deserve continued vigilant regulatory oversight of mutual funds. For this reason, sufficient funding of the SEC should be a priority. The Institute urges Congress to provide appropriations at a level sufficient to ensure the SEC’s ability to fulfill its regulatory mandate.

The Administration’s FY 2001 budget proposes SEC funding at a level of $422.8 million. The Institute supports this level of funding to sustain the SEC’s operations, especially those of the Division of Investment Management, which regulates the mutual fund industry. While we are also pleased that the fee rate for registration statements and other filings pursuant to Section 6(b) of the Securities Act of 1933 has decreased in accordance with the National Securities Market Improvement Act of 1996, we remain concerned that SEC fees will generate revenues significantly in excess of that required to fund SEC operations. In the current fiscal year, for example, it is anticipated that Section 6(b) fees will generate revenues of more than one billion dollars, while the SEC’s budget is $367 million. The Institute has supported and will continue to support adequate financial resources to provide effective regulatory oversight of mutual funds, but we also believe that the fees should be reflective of their intended purpose, that is, to offset the costs associated with the activities of the SEC.

Adequate financial resources are essential for the SEC to continue its effective regulatory oversight of the securities markets and to carry out important investor protection and awareness initiatives. Such resources will enable the SEC to complete its many important initiatives, which include, among other things, finalizing significant rule proposals on fund governance issues, developing new rules for mutual fund advertising, and addressing disclosure of after-tax returns.

The SEC will also be conducting routine and special inspections of investment advisers and fund companies, continuing its review of fund prospectuses and fund profiles under the new disclosure rules, and responding to projected increases in the number of interpretive requests, shareholder letters, and exemptive relief requests submitted by investment management participants.

Moreover, the SEC will address significant equity market structure issues, such as decimalization, concerns over market fragmentation and after-hours trading, and will respond to the many challenges new developments in technology will bring. Finally, the SEC will continue its ongoing investor education initiatives.

These initiatives will benefit the millions of Americans invested in mutual funds and are integral to fulfilling the SEC’s mission of protecting investors and maintaining the integrity and the efficiency of the nation’s securities markets.

Equally important to having adequate financial resources to fulfill these initiatives is the SEC’s ability to maintain adequate staffing resources. To this end, we believe that it is essential that the SEC be able to combat the high attrition rate of its professional staff, which, over the last two years, has resulted in a loss of 25% of its attorneys, accountants and examiners. Accordingly, we support the SEC’s retention initiative, which would raise staff compensation to levels comparable with the banking regulatory agencies. We believe the proposed increases would go far in raising employee morale, thus enhancing the SEC’s recruitment and retention efforts. Attracting and retaining qualified staff obviously are necessary in order for the SEC to fulfill its mandate.

We appreciate your consideration of our views.

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