August 19, 1991
TO: INVESTMENT ADVISERS COMMITTEE NO. 38-91
RE: BREEDEN TESTIFIES ON SEC REAUTHORIZATION
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In recent testimony before the Senate Banking Securities
Subcommittee on the SEC reauthorization request for FYs 1992-94,
SEC Chairman Richard Breeden made recommendations on self
funding, SEC pay levels, investment adviser regulation and
firewall provisions in the Senate Banking bill to restructure the
financial services industry.
In his testimony, Chairman Breeden called for self-funding
for the Commission asserting that it could result in lower fees
for the industry. His proposal would establish a revolving trust
fund account, funded by fees collected by the Commission.
Congress could establish a cap on the size of the fund where any
fee collections in excess of the cap would be rebated to the
industry. At the same time, Chairman Breeden stressed the need
to lift the salary cap for SEC staff to reduce turnover and bring
the Commission in line with the pay policies of other financial
regulators.
Chairman Breeden also recommended that investment advisers
be assessed a "modest" annual fee to enable the Commission to
increase supervision of investment advisers, calling the present
supervision "completely inadequate." He added that if the
Commission is unable to increase supervision, the Investment
Advisers Act should be repealed leaving the supervision of
advisers to state enforcement activity, saying "customers
shouldn't think there is federal regulation when there isn't."
In contrast, Chairman Breeden highlighted the SEC program for
examining the mutual fund industry which he believes is "very
good and active."
When asked about the SEC's position on the creation of a
self regulatory organization for advisers, Chairman Breeden said
that although the SEC has not taken a position, he thought the
Boucher bill to regulate investment advisers might represent a
more desirable approach than an SRO because of the private right
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of action provision. The Boucher bill (H.R. 2412, the
"Investment Advisors Disclosure and Enforcement Act of 1991") is
pending before the Energy and Commerce Committee.
Chairman Breeden was asked about the adequacy of the
"firewalls" in the Senate Banking Committee Print of legislation
to restructure the financial services industry. He stressed the
need to prevent the "Alice in Wonderland misincentives" of the
deposit insurance system from being carried into the securities
business and said there is not enough money in the securities
business to solve the banking industries problems. Chairman
Breeden suggested that, in addition to firewalls, some activities
need to be taken out of the bank, such as foreign currency
trading and swaps, to protect the taxpayer.
On the international front, Chairman Breeden highlighted
the increasing role that investment companies are playing in the
U.S. securities market. He then pointed out that both U.S. and
foreign law impede the sale of U.S. funds in the international
market, and said he strongly believes these laws should be
repealed.
Chairman Breeden also noted that the Commission will
continue work on the Investment Company Act study designed to
determine whether legislative changes are necessary to assure
that mutual fund shareholders continue to enjoy a high level of
safety and to adjust "the scope and requirements of the Act" in
light of the present market.
A copy of the Chairman's testimony is attached and
recommended for your review as it represents the SEC's view of
their activities for the next several years. Please call if you
wish further information.
This memo can also be found on FUNDS, the Institute's Fund
User Network and Delivery System, under Legislative Affairs,
Washington Update.
Julie Domenick
Vice President
Legislative Affairs
Attachment