WASHINGTON, Nov 16 (Reuters) - The Securities and Exchange Commission lacks expertise to police all parts of the $3.7 trillion U.S. municipal bond market, its director of enforcement told a Senate panel on Wednesday.

"The Enforcement program continues to face challenges in securing the necessary expertise, human capital and technology resources to fulfill our mission of investor protection," said SEC Enforcement Director Robert Khuzami, as he discussed "a broader array of challenges stemming from the fast-paced change and increasing complexity apparent in the financial products, markets, transactions, and practices."

"In the municipal securities markets, we need better understanding of pension liability disclosures, valuation issues, and tax-arbitrage activities," he added.

It has been more than a year since the Commission settled charges with New Jersey that the state misrepresented its pension liabilities to its bond buyers. Since then, state and local governments have been under pressure to ensure they have enough money to cover pension promises to future retirees and to tell investors and taxpayers about possible shortfalls.

The financial reform law passed last year, the Dodd-Frank Act, required advisers to those selling debt into the market to register with the federal government, which would put them under a host of regulations.

But when the SEC came close to defining who exactly would have to register last December, it received more than 1,000 comment letters, "including many expressing concerns regarding the treatment of appointed officials and traditional banking products and services," Trading and Markets Director Robert Cook told the same panel, the Senate Bank Committee.

Cook said that his division is "carefully considering all of these comments in preparing its recommendation" for the definition, but did not provide a timeline. He also said that it is preparing an eagerly-awaited report on the state of the market.

(Reporting by Lisa Lambert)

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