Amid questions and criticisms of the Securities and Exchange Commission’s oversight and enforcement capabilities, one of its own commissioners has joined the call for policy changes to shore up its enforcement, including the end of a penalty pre-approval pilot program that’s been criticized by some as tying the hands of its staff.

In a recent speech to the North American Securities Administrators Association, Commissioner Luis Aguilar said the SEC should “answer its critics by demonstrating its commitment to be the markets’ watchdog.”

To do that, he called for the SEC to undertake internal shifts in policy and practice, including immediately ending a penalty pre-authorization pilot program that requires the enforcement staff to seek prior Commission approval before negotiating penalties with corporations. Previously, SEC attorneys could enter into settlement talks without obtaining permission in advance.

He said requiring Commission pre-approval of corporate penalties has limited the discretion of the enforcement staff and resulted in cases taking years longer to resolve than they otherwise would have.

Aguilar said the program makes the process of seeking a penalty against a corporate issuer more onerous by increasing the staff’s burdens in terms of layers of review, subjecting its recommendation to micro-managing, and tying up resources that could be used to investigate and bring other cases.

Citing plummeting penalty amounts in SEC cases against corporate issuers since the program was implemented, Aguilar said, “In my view, the message that is being sent to the staff is that it should forgo seeking penalties or seek smaller penalties against corporate issuers engaged in fraud in order to have the case approved by the Commission.”

Nominee Mary Schapiro said during her confirmation hearing before the Senate Banking committee that she’ll look to end the program if she’s confirmed as chairman.

Among other things, Aguilar also called for the SEC to “rebuild and empower” its enforcement staff; concentrate resources on cases with greater reach into the market; streamline its process for approval of formal orders, the Enforcement Division’s requests to formalize investigations and issue subpoenas, and enforce an internal timetable so staff recommendations will be considered in a “timely manner.”

He also suggested that the Commission should be self-funded, rather than having its budget annually appropriated and apportioned, which he says has “led to weaknesses in the agency’s ability to perform its mission.”

As for regulatory reform, Aguilar said a merger of the SEC and the Commodity Futures Trading Commission “makes sense, but only if done in the right way.” While such a merger would answer the question of who regulates financial services, market participants, and products, he said it wouldn’t address the key question of how they are regulated. He supports the SEC’s model of regulation, which he said “focuses on investors and markets, and provides for strong and broad regulatory authority and vigorous enforcement, coupled with flexible exemptive power to permit dynamic regulation where needed.”

He also called for improved communication and coordination with NASAA, either through the establishment of a standing SEC-NASAA Task Force or by having a NASAA representative at the SEC.

Aguilar also echoed recent calls for Congress to close existing loopholes in the regulation of hedge fund advisers, over-the-counter derivatives such as swaps, and municipal securities, and called for higher standards and fiduciary duties to be applied to broker-dealers who provide investment advisory services.

Finally, he said Congress should give the SEC increased power to bring cases by granting it authority to prosecute criminal violations of federal securities laws where the Department of Justice declines to bring an action and granting it the power to bring civil and administrative proceedings for violations of 18 U.S.C. 1001, the criminal statute violated when someone lies to a government official, and to seek civil money penalties.

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