Financial Regulatory Forum

Post-election SEC could emphasize enforcement over rule-writing, says former chair

By Emmanuel Olaoye

WASHINGTON/NEW YORK (Thomson Reuters Accelus) - With the U.S. Congress still politically divided after the elections that returned President Barack Obama to office, the U.S. Securities and Exchange Commission is likely to take an enforcement approach to supervision rather than look to change conduct by writing new rules, former commission chair Harvey Pitt said.

A divided Congress, he said, would struggle to check an SEC that turned to enforcement actions to implement policies it saw as in keeping with the Dodd-Frank Act.

“If you’ve got a split Congress, effectively it means that Congress’s principal weapon (against a regulator) will be holding hearings … That is a lot less of a potent weapon than the notions that if Congress doesn’t like what you do, they may pass a law that curtails your ability to do what you’ve been doing.”

“In essence it enables a determined and aggressive regulator to basically move and not potentially fear being holed up by Congressional political actions. I think that’s how it will play out,” said Pitt, who heads Washington based consultancy Kalorama Partners.

Obama’s re-election was a boon to supporters of Dodd-Frank who want Wall Street firms to face tougher rules on risk taking, lending and consumer protection. Mitt Romney, his Republican opponent, had said he would repeal the ground breaking law if he was elected as president.

Kill switches may be too difficult to implement despite new call by CFTC member, expert says

By Emmanuel Olaoye, Compliance Complete

WASHINGTON, Oct. 17 (Thomson Reuters Accelus) - CFTC Commissioner Bart Chilton has called for high frequency traders, or “cheetahs” to face so-called kill switches that would shut down a broker dealer’s trading over erroneous orders or technology glitches. But a trading expert said the measure may be too difficult to implement in practice.

The problem with kill switches lies with the timing of the decision to turn off electronic trading, said Bernard Donefer, a professor of Trading Technology and Risk management in financial markets at Baruch College and NYU Stern School of Business.  (more…)

EXCLUSIVE: Credit derivatives market can expect specific rules, says regulator

By Rachel Wolcott, Compliance Complete

LONDON, Oct. 4 (Thomson Reuters Accelus) - Credit derivatives dealers can expect to see specific rules and regulations to address some of the peculiarities of that market, said Edouard Vieillefond, director in charge of regulation policy and international affairs at French regulator Autorité des marchés financiers (AMF). Despite the huge amount of regulation already aimed at the broader derivatives market, there is concern that it will be insufficient to cover continuing questions that regulators have about its functioning.

“The question is will the reform currently under finalisation or implementation, such as EMIR in Europe, be enough? Credit default swaps are derivatives on credit that look like insurance products. They are so specific they may deserve specific treatment and additional regulatory requirements or perhaps a better harmonisation of the prudential and the traditional market conduct regulation,” Vieillefond told Compliance Complete. (more…)

SEC whistleblower program stricter than IRS bounty which paid $104 million to felon, former official says

By Stuart Gittleman

NEW YORK, Sept. 12 (Thomson Reuters Accelus) - Rewards like the $104 million the Internal Revenue Service said Tuesday it would pay a convicted felon would not occur under a similar Securities and Exchange Commission program, a former official who helped develop the program told Compliance Complete. (more…)

Retaliation rate against U.S. company whistleblowers climbs, senior staff affected, survey finds

By Julie DiMauro

NEW YORK, Sept. 6 (Thomson Reuters Accelus) - Retaliation against workplace whistleblowers is rising sharply, expanding into previously safe categories of employees such as senior-level managers and even in workplaces with notably strong ethical cultures, a study found.

The trend comes as new regulations require more formal reporting channels for internal whistleblowing and more managers use them, study sponsors said. They recommended that companies more closely monitor what happens to whistleblowers after they report. (more…)

Weak U.S. legal oversight puts burden on compliance pros to protect their firms, author says

By Stuart Gittleman

NEW YORK, Sept. 4 (Thomson Reuters Accelus) - An inadequate government and industry response to the financial crisis will require compliance professionals to do more to protect their firms, customers and colleagues, Jeff Connaughton, who said he saw firsthand how reform withered in Congress, has told Compliance Complete.

“Until law enforcement causes actual deterrence, compliance needs to understand what institutional and retail customers can – and can’t – stomach. And those customers need to get back to performing exacting due diligence. Until we have tough law enforcement again, institutional customers will have a greater impact on Wall Street behavior than federal prosecutors,” said Connaughton, a former investment banker, aide in President Bill Clinton’s administration, lobbyist and longtime political associate of Vice President Joe Biden. (more…)

INTERVIEW: Board members are accountable for compliance, SEC’s di Florio says

By Emmanuel Olaoye

WASHINGTON, Aug. 31 (Thomson Reuters Accelus) – Directors who fail to take an interest in compliance risk the threat of enforcement action from the Securities and Exchange Commission, a top official from the agency said.

In an interview with Thomson Reuters, Carlo di Florio, director of the SEC’s Office of Compliance Inspections and Examinations, said the agency was focused on developing an examination regime that looked at a company’s culture of compliance at every level of management. Board members who are not engaged in the compliance process risk the chance of their firm being referred to the SEC’s enforcement division for fraud or compliance failures. (more…)

U.S. brokerage regulator warns of ‘unpleasant surprises’ on ETNs

By Stuart Gittleman

NEW YORK, July 11 (Thomson Reuters Accelus) – The Financial Industry Regulatory Authority, the U.S. brokerage regulator, warned investors Tuesday in an alert of the features and risks of exchange-traded notes.

The alert, Exchange-traded notes: avoid unpleasant surprises, listed the risks of certain ETNs and urged investors to carefully investigate before investing in them.  (more…)

U.S. securities regulators focus rulemaking, exams on retirement products

By Stuart Gittleman

NEW YORK, July 5 (Thomson Reuters Accelus) – The U.S. Securities and Exchange Commission will return its rulemaking and examination focus to retail sales of retirement products, a Division of Investment Management official told the Insured Retirement Institute, an industry group.

“[T]o better understand the impact of our regulations on market participants, we are working to staff a new examination function within the division, as required by the Dodd-Frank Act,” associate division director Susan Nash said at the IRI government, legal and regulatory conference last week. (more…)

U.S. state oversight of small investment advisers takes effect; exams and enforcement loom

By Jason Wallace

SAN DIEGO/NEW YORK, June 28 (Thomson Reuters Accelus) – A long anticipated and well-publicized deadline for “the switch” is here. According to recent estimates, 2,500 investment advisers with less than $100 million of regulatory assets under management will make the switch from the U.S. Securities and Exchange Commission oversight to registration and in one or more states, with the prospect of more frequent exams and vigorous enforcement.
Today’s deadline requires the firm to be registered in the applicable states and withdraw its SEC registration by the end of the day. Although the proverbial switch has been pulled, the regulatory changes have just begun. Newly transitioned mid-sized advisers will now face an imminent regulatory exam and be required to comply with unique state compliance requirements. (more…)

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