Despite significant market declines in December 2018, the amount of regulatory assets advisors reported in 2019 increased to $83.7 trillion from $82.5 trillion in 2018, a one-year growth of approximately 1.4%.
The total industry aggregate AUM/RAUM has grown 279% since 2001—a compound annual growth rate of 8.2%, the report found.
“In light of these challenges, it is imperative that management effectively use risk-based processes and leverage technology and analytics to address its regulatory responsibilities, including those of the examination program,” the SEC IG said.
The SEC uses the results of OCIE’s examinations to inform rule-making initiatives, identify and monitor risks, improve industry practices, and pursue misconduct.
Although the SEC received an appropriation of about $1.675 billion in FY 2019—a $23 million (or 1.4 percent) increase over its FY 2018 appropriation—the SEC’s annual appropriation was essentially flat for several years, “requiring a number of difficult operational choices, including cuts to contractor contracts and a hiring freeze,” the IG said.
The SEC implemented its hiring freeze in FY 2017, which resulted in a decrease of more than 400 positions over the last two fiscal years. In 2018 and 2019, divisions and offices reported specific challenges created by staffing levels that have fallen or have not kept pace with workload demands, the SEC said.
The freeze has hit SEC enforcement, too. For example, the Division of Enforcement reported that the combined number of positions in the division and the number of contractors supporting investigation and litigation efforts fell by about 10 percent between FY 2016 and FY 2018.
Although the Division continued to exhibit significant enforcement-related activity, enforcement management reported that, with more resources, the SEC could focus more on individual accountability, and support two key Enforcement priorities: protecting retail investors and combating cyber-related threats, the SEC IG said.
Increased 2019 funding allowed the SEC to begin lifting the hiring freeze and restoring positions to address critical priorities and enhance the agency’s expertise in key areas, including cybersecurity and market oversight, the inspector general continued.
Increasing funding again in 2020 remains a priority for the agency. According to SEC Chairman Jay Clayton’s congressional testimony earlier this year, the SEC’s 2020 request of $1.746 billion, a 4.2-percent increase over the FY 2019 enacted levels, will support 4,694 positions at the SEC, including 34 new positions.