The Trump administration is planning to eliminate a part of the Securities and Exchange Commission budget that the regulator has been using to build tools for identifying insider traders and pursuing enforcement actions.
A line item buried in the proposed budget released by the White House last week would scrap a $50m annual “Reserve Fund” created in the Dodd-Frank Act that Congress passed in 2010 following the financial crisis.
The SEC has used the fund to modernise its technology to better police the stock market, and the proposal to take away the money drew criticism from Mary Jo White, who chaired the SEC until January.
The SEC needs “the ability to fully use the Reserve Fund in order to discharge its critical responsibilities”, Ms White told the FT.
“The fund is very important to the SEC and especially its ability to engage in spending for long-term, critical IT projects, which is an area where all agree it is important for the SEC to keep pace with the rapidly changing technology of the industry and markets it regulates.”
Some Republicans in Congress have condemned the money as a slush fund and have taken aim at it before. While it is capped at $50m a year, it has been slashed in half by lawmakers in three of the past six years.
In its budget plan, the administration gave notification of the proposed elimination in a paragraph under a broader section about financial regulation: “The budget also proposes to restore the Securities and Exchange Commission’s accountability to the American taxpayer by eliminating the “Reserve Fund” created by the Dodd-Frank Act.”
If the language survives negotiations and is passed by Congress, the SEC’s fund would be axed in 2019. The SEC declined to comment.
The SEC has discretion on how to use the Reserve Fund. It is distinct from the agency’s annual budget appropriation — proposed by the administration at $1.6bn for 2018 — in which money is earmarked for specific divisions.
The SEC has tapped the fund to:
• develop investigative tools that officials have used to bring insider trading cases;
• create case management systems for its examinations and enforcement division;
• build projects for digesting growing volumes of financial data that the agency inputs into its surveillance and oversight systems;
• and modernise its Edgar corporate filings system.
A July 2015 report by the SEC’s inspector general warned that, without the fund, “the SEC would not have the capability to ingest, mine, and use large data sets to meet its oversight mission”.
In its budget request earlier this year, the agency said it “contemplates continued access to the commission’s Reserve Fund to fund long-term capital investments in information technology”.