SEC: More Examiners or More Automation?

According to a recent article, the SEC budget request will seek money for 250 new investment advisor examiners. The SEC has more IAs to examine than public companies, 11,000 vs 8,000. According to sources quoted in the article, under current processes the SEC would really need almost 2,000 additional examiners. It is not going to get them.

Something similar happened in the years after Sarbanes-Oxley. If you examine the SEC supplementary budget requests, they ask for the funds to cover many new accountants and lawyers. People are expensive. Buildings need to be built to house them, and they have long lasting impact on budgets from retirement benefits.

Improved data collection, not so much. If the alternative is working harder (more staff), working smarter (analytics on better data) starts to look very attractive. And yes, it could be XBRL.

So I went to look at the Form ADV on the SEC website. There is still a hardship exception for not having access to a computer! An important part of the filing is a PDF brochure. It isn’t clear that there is a connection between CRD numbers to identify individuals and CIK numbers used in the rest of EDGAR, so there might be a KYC (know your customer) gap.

I would propose that before SEC Chairman Mary Jo White pushes for more people, the process and technology supporting the exam decision be given a hard look. There are other improvements possible, as well. Scaling filing fees to assets under management could bring more money to fund changes, for example. Lets try to avoid a ‘John Henry‘ moment.


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