Recently, a congressman released draft legislation that would institute comprehensive changes at the SEC. This legislation was dubbed the “SEC Modernization Act.”
This legislation would consolidate several SEC offices including, among others, OCIE and the Division of Risks, Strategy and Financial Innovation. The legislation would also put into play certain changes suggested by the SEC’s Inspector General, the GAO, and an independent consultant report that recommended, among other things, the SEC invest in new technology, employ staff with greater skills, and strengthen oversight of SROs. The draft legislation also would seek to eliminate the so-called “revolving door” of SEC employees to the private sector. The legislation would require the Office of Ethics Counsel to create a system relating to employee recusals, and to identify potential conflicts of interest when employees leave the SEC.
The legislation would also limit the SEC’s use of funds from the Dodd Frank Act. In particular, the legislation would “lock” the SEC into a structure that is legislative in nature. Since the SEC is, currently, allowed to structure its offices and divisions, eliminating them when necessary as well as adding them, this legislation would change that authority, now requiring Congress’ approval for any restructuring.
In sum, this legislation should be categorized in the file labeled “throwing the baby out with the bath water.” Although there are issues that need to be addressed from an operational and structural point at the SEC, it is unlikely that this legislation would address those issues since it removes any discretion from the SEC, making it even more intransigent at a time when it needs to be flexible.