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Statement of the
Investment Company Institute
On the U.S. Securities and Exchange Commission’s Appropriations for Fiscal Year 2005
Submitted to the
Subcommittee on Commerce,
Justice, State, the Judiciary, and Related Agencies
of the House Committee on Appropriations
U.S. House of Representatives
March 31, 2004
The Investment Company Institute1 appreciates this opportunity to submit testimony to the Subcommittee in support of the FY 2005 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 an integral part of the U.S. economy and have become one of America’s primary savings and investment vehicles for middle-income Americans. Today, more than 91 million investors in over 53 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 $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 2005 budget proposes SEC funding at a level of $913 million. The Institute supports this level of funding, which is a significant and necessary increase over the record amount appropriated for the current fiscal year. Such funding is essential for the SEC to continue effective regulatory oversight, particularly the oversight of the mutual fund industry by the agency’s Division of Investment Management. It is critically important that the SEC have sufficient resources to, among other things, develop appropriate responses to address recent trading abuses that have occurred within the fund industry. Increased funding is also essential for the agency’s Office of Compliance Inspections and Examinations (OCIE), to enable it to continue to successfully carry out its inspection duties with respect to mutual funds and, in particular, complete its initiatives related to recent investigations concerning, among other things, late trading, abusive market timing, and selective disclosure of portfolio holdings. Increased funding will also enable OCIE to continue the implementation of its enhanced risk-based inspection program, an initiative that began in FY 2003, and which involves more frequent inspections of mutual funds and investment advisers than were performed under the previous inspection program.
Increased funding is also essential for several new SEC initiatives. For example, the SEC intends to create a new Office of Risk Assessment, which is focused on early identification of new or resurgent forms of fraudulent, illegal or questionable behavior. Related to this, the Division of Investment Management intends to establish its own risk management group that will report into and work closely with the Office of Risk Assessment. Moreover, the SEC intends to form a new task force whose mission is to prepare the outlines of a new mutual fund surveillance program. The Institute supports such initiatives.
Furthermore, adequate financial resources are critical to the SEC’s ability to maintain adequate staffing. As a result of a previous budget increase, the SEC has been able to increase its staff to record levels. In particular, the size of the examination staff was increased by a third to approximately 500 examiners, which, in conjunction with OCIE’s new examination protocols, have enabled it to enhance its ability to detect violations of the law. We were pleased at this development. Accordingly, we continue to support enhanced funding for the SEC to enable it to hire the staff it needs to fulfill its many initiatives and objectives.
In order for the SEC to develop new and continue existing initiatives in its goal to function as an effective regulatory agency, it is critically important that it have sufficient resources. The Institute and mutual funds have consistently supported increased funding for the SEC. Now more than ever, it is essential that the SEC be provided with the funding and staffing it needs to shore up its regulatory framework and fulfill its mission of protecting the nation’s investors, including the more than 91 million Americans who own mutual funds. Accordingly, 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.
1 The Investment Company Institute is the national association of the American investment company industry. Its membership includes 8,625 open-end investment companies ("mutual funds"), 611 closed-end investment companies, 124 exchange-traded funds, and six sponsors of unit investment trusts. Its mutual fund members have assets of about $7.457 trillion. These assets account for more than 95 percent of assets of all U.S. mutual funds.