Government Shutdown Could Freeze Investigations and Enforcement Actions by SEC and Other Federal Regulators

Although the SEC would maintain some functionality in the event of a government shutdown, the majority of its activities, including inspections and examinations of registered investment advisers and broker-dealers would and ongoing enforcement actions would be discontinued until after a government shutdown. According to SEC Chairman Mary Schapiro, the SEC “will do some market surveillance and a number of other activities but the vast majority of the SEC functions will not continue during a government shutdown.”

Federal agencies such as the SEC and CFTC cannot operate without spending authority provided by Congress, which is set to expire Friday unless Congress can reach agreement on a new budget. In addition, the SEC and the CFTC are the only two agencies that are subject to annual appropriations and unlike other regulators, are operating under last year’s budget level, which has already forced the SEC to defer much of its rulemaking and other activities required by the Dodd-Frank Act.

This likely means that enforcement actions, regulatory examinations and investigations, review of disclosures and applications, would come to halt. Moreover, the SEC’s rulemaking agenda, which is quite substantial given the requirements imposed by the Dodd-Frank Act, would be delayed for some time.

We will continue to monitor the developments in Congress and the effect on the industry in the event of a government shutdown. For additional information, please contact Zac Rosenberg, Compliance Consultant by email at zachary.rosenberg@corecls.com or by phone at (619) 278-0020.