SEC Faces Compliance Costs, Too

By CIOinsight  |  Posted 04-05-2005

With a little more than a year under his belt as CIO of the Securities and Exchange Commission, Corey Booth has been given a new mandate: Update the agency's technology systems to better and more quickly handle the ever-growing number of corporate investigations the commission undertakes each year.

It's a tall order, says Booth, even with the SEC's $113 million IT budget for 2005, a figure that has more than doubled since 2002.

"Historically, the SEC has underleveraged technology," he says. "We have been behind the curve. Ultimately we want to be in a position where we work with regulated companies on terms that are acceptable to both of us."

The bad news is that the new IT improvements will have a profound effect on U.S. businesses. Not only will the SEC be more effective at detecting fraud, but it will soon require companies to comply with its new technology, according to Boston-based research firm TowerGroup.

"The SEC has a mission to create a more efficient investigation process, and companies are going to have information requirements that are meatier than they were a couple of years ago," says Rob Hegarty, vice president of the securities practice for TowerGroup, which estimates that for each dollar the SEC spends on IT, the companies that report to it will spend an extra $5 toward compliance efforts.

Already under way is a digital imaging initiative Booth calls Electronic Discovery. Instead of sifting through paper records during an investigation, documents are now digitized as they arrive at the SEC.

"If you sue a firm the size of Enron, you'll have truckloads of documents that some poor attorney has to sift through. Now all that stuff can be done digitally," he says.

The benefit of digitizing all that data, Booth says, is that documents can then be keyworded and searched. That will lead to quicker completions of investigations—Booth estimates it can cut materials analyzing times by half—and will allow the SEC to be more thorough.

"For example, if we are going through an investigation and we think we should check someone else's involvement, in a paper world we'd have to go back to the beginning," and again search through countless documents, Booth says. "Now, we won't have to do that."

Other initiatives include a content management system to better track reports and documents, and a portfolio management system to better manage cases.

Booth says the initiatives are part of a five-year plan, but he hopes to have much of the work completed within the next two to three years.