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Statement of the
Investment Company Institute
On the U.S. Securities & Exchange Commission’s
Appropriations for Fiscal Year 2004
Submitted to the Subcommittee on Commerce,
Justice, State, and the Judiciary
of the House Committee on Appropriations
U.S. House of Representatives
April 8, 2003
The Investment Company Institute1 appreciates this opportunity to submit testimony to the Subcommittee in support of the FY 2004 Appropriations request for the Securities and Exchange Commission (SEC). The Institute would like to commend the Subcommittee for its consistent past efforts to assure adequate resources for the SEC.
Mutual funds are one of the primary savings and investment vehicles for middle-income Americans. Today, more than 95 million investors in over 54 million U.S. households own mutual fund shares. Since 1990, the percentage of U.S. retirement assets held in mutual funds has more than quadrupled. Moreover, most mutual fund investors are ordinary Americans; the median household income of fund shareholders is approximately $62,000. 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 2004 budget proposes SEC funding at a level of $841.5 million. This greatly exceeds last year’s appropriation of $711.7 million. The Institute supports this enhanced level of funding to support the SEC’s operations, especially those of the Division of Investment Management, which regulates the mutual fund industry. Such resources will help the SEC to carry out its many important initiatives, which include, among other things, adopting requirements for improved shareholder reports, analyzing the feasibility of requiring new compliance related rules for investment companies and investment advisers, finalizing rules to combat money laundering, and finalizing amendments to the mutual fund advertising rules.
The recommended enhanced level of funding also will permit the SEC to monitor compliance with the many significant new requirements adopted as a result of the Sarbanes-Oxley Act of 2002, which include, among others, disclosure regarding codes of ethics for senior executive officers and the presence of financial experts on audit committees, certification of financial and other information, independence standards for public company auditors, and standards of conduct for corporate attorneys. Moreover, it will permit the SEC to fulfill its mandate to oversee the operation of the Public Company Accounting Oversight Board (PCAOB), including the ratification of fundamental rules and procedures for the PCAOB. We also are pleased that H.R. 658/S. 496, “The Accountant, Compliance, and Enforcement Staffing Act of 2003”, has been introduced in both the House and the Senate. This bill would permit the SEC more flexibility in its hiring process, making it easier for the SEC to hire the staff it needs to carry out these additional responsibilities.
Several important SEC initiatives indicate an enhanced workload for the Division of Investment Management. First, the Division will be responsible for monitoring compliance with the new requirements related to proxy voting. Second, the Division will be responsible for providing the SEC with a report on the hedge fund industry, assisting with SEC hearings to be conducted in connection with this endeavor, and analyzing the need for, and potentially developing, new regulations related to hedge funds. Third, the Division will be instrumental in responding to Congressional inquiries related to mutual fund issues. These important initiatives, which will affect millions of American investors, will require additional staff to see that they are properly analyzed and to develop appropriate recommendations.
Adequate funding is also needed for the SEC’s new enhanced risk-based inspection program, which began in FY 2003 and will continue in FY 2004. For investment companies and investment advisers, this means that those with relatively higher risk profiles will be examined every two years, while all remaining firms will be examined no less frequently than every four years. These more frequent inspections are a significant improvement over the five-year inspection cycle for investment advisers and investment companies that existed prior to FY 2003, and the SEC’s appropriations should be sufficient to continue this important initiative.
Finally, adequate funding is essential to the SEC’s efforts to educate investors. The SEC’s Internet website contains many sources of important information for investors, including an on-line publication explaining mutual funds and investor alerts that help investors avoid scams and securities frauds. These and other SEC programs assist investors to understand the capital markets and establish realistic expectations about market performance. This is an integral part of the agency’s mission to protect investors.
In order to accomplish these worthy objectives and to continue to function as an effective regulatory agency, we support that the SEC be funded at the level requested by the Administration and supported by Chairman Donaldson.
We appreciate your consideration of our views.
1The Investment Company Institute is the national association of the American investment company industry. Its membership includes 8,929 open-end investment companies ("mutual funds"), 553 closed-end investment companies and 6 sponsors of unit investment trusts. Its mutual fund members have assets of about $6.322 trillion, accounting for approximately 95% of total industry assets, and 90.2 million individual shareholders.