Thank you, Mr. Chairman.
I support the funding rules that we are voting on today for the allocation of the Board's accounting support fee among issuers, brokers and dealers.
I would note, in particular, that these funding rules are considerate of the likely burden on small firms. As I mentioned when these rules were proposed last December, approximately 86% of brokers and dealers had tentative net capital of less than $5 million. In order to avoid placing an excessive burden on those smaller brokers and dealers, these rules provide that brokers and dealers with tentative net capital of less than $5 million would not be allocated a share of the broker-dealer fees and, therefore, would not receive an invoice from the PCAOB.
These funding rules also provide the same sort of relief for public companies and investment companies. Specifically, the market capitalization thresholds will be raised from what they were under the previous funding rules and, as a result, the number of companies that do not receive an invoice from the PCAOB will increase.
In summary, I believe that these funding rules reflect the Board's sensitivity to the costs that may be imposed on smaller entities.
I join you, Mr. Chairman, in thanking the staff for their excellent work in developing the rules before us today. In particular, I would like to thank Bob Burns and Nina Mojiri-Azad from the General Counsel's Office and Annie Braswell from the Finance Office.
Thank you, Mr. Chairman.
I support both items we will vote on this morning — the proposed temporary rule for an interim program of inspections of broker-dealer audits and the proposed allocation of the Board's accounting support fee among issuers, brokers and dealers.
The proposed fee structure we are considering today is equally considerate of the financial burden on smaller broker-dealers.
To date, the primary source of Board funds has been the accounting support fee paid by public companies and investment companies. The Dodd-Frank Act specifies that the costs of the Board's expanded responsibilities should be allocated among brokers and dealers. The Act allows the Board to differentiate among classes of broker-dealers, but requires that the amount be calculated based on relative net capital "before or after certain adjustments" – in other words, "tentative net capital."
The Board's proposing release contains information obtained from the Financial Industry Regulatory Authority (FINRA), which shows that the majority of the tentative net capital in the industry is highly concentrated in relatively few companies. Indeed, approximately 86% of broker-dealers have about 1% of the industry's capital. Conversely, 99% of the industry's tentative net capital is held by just 14% of the industry.
The Board is proposing to exclude brokers and dealers with tentative net capital of less than $5 million — 86% of the industry — from the accounting support fee. Therefore, under today's proposal, those smaller broker-dealers would not receive an invoice from the PCAOB.
The Board is making similar proposals in the funding rules regarding the fees paid by public companies and investment companies. Currently, companies under a certain market capitalization are not allocated a portion of the accounting support fee. As explained in the release, under the proposals, these market capitalization thresholds would be raised and, as a result, the number of companies that do not receive an invoice from the PCAOB would increase. As a group, it is expected that this proposed reallocation would have a negligible effect on the fees allocated to other companies.
In summary, the Board's proposals today — the inspection program and funding rules – reflect the Board's sensitivity to the costs that may be imposed on smaller entities, while maintaining our primary focus on investor protection.
I look forward to reviewing the comments on both proposals and to moving forward with the development of our broker-dealer audit oversight programs.
Before I close, I would like to join you, Mr. Chairman, in thanking the staff for their efforts and thorough analysis in developing the proposed rules before us today. In particular, I would like to thank Michael Stevenson, Bob Burns and Nina Mojiri-Azad from the General Counsel's Office and Annie Braswell from the Finance Office.