To Walter, "the worst part of Dodd-Frank" is the lack of self-funding for the SEC. The agency is one of the few financial regulators still subject to the annual appropriations process.
She called the agency "strikingly short-staffed" and hindered technologically. "If we had the dollars to put into technology," she said, it would allow more agency workers to focus on sophisticated projects rather than routine tasks.
She also said the SEC is "not doing an adequate job of examining investment advisers. We don't have the resources to do so." Dodd-Frank mandated the registration of certain hedge-fund and private-fund advisers — so far, about 1,500 new entities have registered with the SEC.
"This is a whole new category," Walter said, and the SEC's goal is to "examine the areas that we think create the highest risk." The first examinations are focusing on marketing, portfolio management, conflicts of interest ("which will, I'm sure, be a perennial topic," she said), the safety of client assets and valuation.
According to Walter, while many new registrants are "doing a pretty good job," there are also "many instances of really poor controls, and worse than that, potential misconduct, especially around fees and expenses." Problems include advisers who miscalculate fees, collect fees to which they are not entitled or use fund assets to cover personal expenses.
Walter also discussed the agency's new whistleblower program, which in fiscal year 2012 received 3,001 tips — about eight a day. The program provides cash awards in certain circumstances to those who report wrongdoing. "The early returns are good," she said, describing the tips as "of higher quality, higher credibility…than tips and complaints that come in through other forms."
The program paid out its first award in August — $50,000 to a whistleblower who stopped a multimillion-dollar fraud — and Walter said the SEC is currently reviewing other potential awards.
UNDER THE SURFACE
As Walter painted a picture of a vigorous SEC going forward, law firm managers speaking on an earlier panel at the summit agreed that regulatory practices are likely to continue to buoy Washington law offices.
R. Bruce McLean, the chairman of Akin Gump Strauss Hauer & Feld, said his firm saw increases in public policy and regulation during 2012. "I think 2013 is going to be an active year from a regulatory standpoint," he said.
Bobby Burchfield, the co-head of McDermott Will & Emery's Washington office, said that Obama would likely use regulatory policy more in the second term in part because he does not have a filibuster-proof Senate. "We think the administration will use the issuance of regulation rather than Congress to handle its business," he said. "We expect quite a bit of administrative litigation to challenge the validity of those regulations."
Speakers on another panel about workplace issues also predicted more activity by federal regulators.
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