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SEC Division Seeks 2001 Budget Rise


The Securities and Exchange Commission is seeking approval of a fiscal year 2001 budget of $422.8 million, an increase of $45.8 million, or 12 percent, over its fiscal year 2000 budget of $377 million. From 1999 to 2000, the budget increased by 11 percent, up from $338.9 million.

The division of investment management, the division primarily responsible for overseeing the mutual fund industry, has requested a budget of $77.7 million for 2001, an increase of 13 percent over its 2000 budget of $68.7 million. From 1999 to 2000, the division's budget rose eight percent, up from $63.4 million. The proposed budget would represent 18 percent of the total SEC budget, about the same proportion it has represented in the past two years.

Across all divisions of the SEC, more than $150 million, up from $112 million spent in 1999, is being requested for fraud prevention initiatives against insider trading, financial accounting fraud, and Internet fraud. The SEC is also requesting an extra $10 million to upgrade its information systems to improve its interactions with the public and its document systems management.

The SEC's budget proposals are part of the government spending package that President Clinton delivered to Congress on Feb. 7. The proposed budget would be for the year beginning Oct. 1, 2000.

The budget request has increased along with the SEC's projected regulation of $19 trillion in assets under management by 2001, up from $15 trillion in 1999. Of that, the SEC estimates that mutual funds, by far the largest segment of the investment industry, will account for more than $7 trillion in assets by 2001.

According to the SEC, the fund industry's current assets of more than $6 trillion already puts it above the total financial assets of all commercial banks, currently at $5.4 trillion.

The SEC's proposed budget increase includes expenditures for salaries and benefits, non-personnel expenses and the cost of adding 50 new positions. But the SEC is also seeking approval for an additional $15 million of "special pay" with which it hopes to combat the agency's high staff attrition rate, particularly troublesome among the SEC's senior ranking professionals. Over the past two years, the agency has lost 25 percent of its attorneys, accountants and examiners, according to the SEC.

With an expanded budget in 2001, the division of investment management plans improvements to the prospectus requirements for variable insurance products, according to the SEC.

"The recent extraordinary growth in variable insurance products has highlighted the need to improve disclosures made by variable insurance products entities," said the SEC in its budget request.

The SEC also plans to "place special emphasis on inspections of sponsors of variable annuities and variable life insurance products..."

Additional resources will allow the SEC to develop a disclosure document for unit investment trusts aimed at improving disclosure to investors and providing issuers with a simplified registration process.

In 2001, the SEC also expects to meet its goal of conducting inspections of at least 20 percent of investment companies and investment advisers annually. The SEC estimates that 1,645 investment companies and advisers will be inspected during the year. The SEC also expects to conduct routinely- scheduled inspections of 40 transfer agents that are affiliated with fund complexes.

The SEC further plans to conduct routine inspections of 15 fund administrators during the year. It also plans to conduct more than three dozen special inspections of fund complexes or advisers.

The SEC also has on its agenda at least 10 joint inspections and one coordinated inspection of advisers over whom the SEC shares oversight with one or more foreign regulators.

The SEC will also be working on developing an electronic adviser registration and information distribution system that will coordinate with those of state regulators.