Rules are good, but who’s going to enforce them?

Since the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in July, many federal agencies, including the Securities and Exchange Commission, the Federal Reserve Board, and the Office of the Treasury, have been tasked with creating new rules that will govern the future of America’s financial institutions. The Act contains some 300 provisions and may necessitate promulgating upwards of 243 regulations. However, many agencies are now facing an important question: where is the money to properly enforce these new regulations going to come from? Heated debate has raged about appropriate funding for agencies like the SEC and CFTC, whose 2010 funding levels are set to expire March 4.

SEC Chairman Mary Shapiro recently raised the issue before the Senate. Ms. Shapiro has stated that “[t]he real crunch comes after the rules are in place and [the SEC] has to operationalize them. We lack the resources to do that.” Congress’ failure to pass a budget that would have given the SEC an 18% funding increase puts that agency and other regulatory agencies in a bind. If unsuccessful, Shaprio has stated that the SEC will have to cut some 600 employees and would be unable to implement the rules and studies required by the Act.

To help mollify the situation, on January 26, 2011, the Federal Bar Association Securities Law Committee Executive Counsel wrote a letter to members of Congress imploring them to vote for more funding for the SEC. The letter asks Congress for “a substantially increased appropriation for the SEC” through registration fees at no cost to the American taxpayer, and “the adoption for the SEC of the same funding model that Congress has used successfully for decades for the nation’s banking regulators.” In response to the fiscal stalemate, Senator Barney Frank, one of the authors of Dodd-Frank Act, introduced an amendment last week to increase the SEC’s funding by $131 million.

The week of February 28th saw more heated battle over future of SEC and CFTC funding. Congress has proposed a $56.8 million cut to the CFTC’s budget and a $25 million cut to the SEC’s budget. In response,, a non-profit organization founded to represent the “average retail investor,” has encouraged its members to send letters to their House representatives to prevent future funding cuts. In addition, Jeff Mahoney, General Counsel for the Council of Institutional Investors, said in a press release:

“While regulatory failures were a contributing cause of the financial crisis, the solution is not to cut the funding of the SEC and the CFTC.  Rather, the solution should include providing the SEC and CFTC with the resources necessary to improve their effectiveness and better fulfill their important missions–missions which have now been significantly and appropriately expanded by Dodd-Frank.  The bottom line is that underfunding the SEC and CFTC will likely guarantee weak enforcement of our securities laws and lax oversight of our financial markets, a result that should concern investors and all Americans.”

Mr. Mahoney’s comments, and others like it, will weigh heavily on the minds of many in Congress in the coming weeks, but with a looming deadline, action is needed immediately to ensure that Dodd-Frank agencies will have the teeth necessary to ensure the goals of the Act are met.

Cite as:

Michael Perez Rules are Good, but who is Going to Enforce Them?, Berkeley Bus L.J.. Network (March 2, 2011),