BrokeAndBroker: SEC/FINRA Ooops
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by Bill Singer Subscribe to RSS Feed: Blog Home | Past Entries SEC Open Letter: Don't Cost Cut. Don't Lay Off. Written: December 3, 2008
As a child, I had a fascination with Napoleon (which may well account for the Napoleon complex many attribute to me--after all, I'm fairly short in stature, tend to walk around with my hand tucked into my shirt, and have a fondness for bicorne hats). Among Bonaparte's more trenchant quotes is this one:
"If you wish to be a success in the world, promise everything, deliver nothing."
By that measure, Wall Street's regulators have been an incredibly successful bunch the past few years.
The Open Letter
Prominently posted on the Securities and Exchange Commission's website--near the top of the page with some fanfare--is this December 2, 2008, nugget:
SEC Staff Reminds CEOs Of Registered Firms of Importance of Compliance Programs
Upon visiting that link, I was much taken with the opening lines of the press release, which I reprint verbatim immediately below:
The Securities and Exchange Commission's Office of Compliance Inspections and Examinations today issued an open letter to chief executives of SEC-registered firms, including broker-dealers, investment advisers, investment companies and transfer agents, to remind them of the critical role played by their firms' compliance programs in assuring that their operations comply with the law and rules for industry participation and to ensure that the interests of customers or clients are protected.
Reductions and Cost-Cutting: No-no's
My, my, my!!! What incredibly helpful and substantive guidance we get these days from those diligent minions of regulation. Of even more help, is this additional reference in the Open Letter:
In the open letter, Lori Richards, Director of the SEC's Office of Compliance Inspections and Examinations, wrote, "While many firms are considering reductions and cost-cutting measures, we remind you of your firm's legal obligation to maintain an adequate compliance program reasonably designed to achieve compliance with the law."
In case any of you didn't pick up on Director Richard's helpful advice, let me parse through the fact-packed commentary and break it down to the basics. You might want to write this down. Okay, so, you see, it's like this, Director Richards knows that our economy is going into the toilet. I mean, geez, it's not like the folks at the SEC work in a vacuum. Well, okay, maybe they were too cloistered while the economy was melting down and all, but surely things have now dramatically changed. They probably get to work earlier and stay later, and they are out there daily battling against the very forces that---well, ummm---the very forces that they failed to detect and battle earlier...you know, like when it mattered and when the SEC's active regulation might have prevented much of the present pain. They all show up at the office and do whatever it is that didn't seem to make much of a difference. Thankfully, they still have the time to draft these open letters and post them on their website and then give speeches.
However, let's not dwell on the past. I know that many of you are considering reductions of employees and eliminating divisions. I know that you don't want to. I know that things are tough. Sadly, if you don't cut costs and reduce staffing you may have to close tomorrow. Hell, Director Richards feels your pain too. Of course, we haven't seen much, if any, cost cutting from any state or federal government in years, but, hey, at least those in charge of our overblown bureaucracies are aware that those of us in the private sector are hurting. Of course, if those of us in the public sector had done our jobs from day one, then many of these cost cutting measures and layoffs might not have been necessary.
No Favor Granted
I also note that the Open Letter has this link SEC Chairman Christopher Cox's remarks, which takes you to a speech by Chairman Cox on November 13, 2008. Among the many forceful lines from that speech, are the following:
Now more than ever, companies need to take a long-term view on compliance and realize that their fiduciary responsibility requires a constant commitment to investors. That means sustaining their support for compliance during this market turmoil, and beyond it as well.
Today, when the future is uncertain, when markets are unstable, when investor confidence is shaken, this is the time — more than ever — when we need a powerful voice for compliance.
When a company cuts compliance, violations will occur. And if violations occur, punitive actions should and will be taken. In the current environment, that is true now more than ever. There will be no favor granted because a company made a cost-cutting decision to minimize their compliance budget. That's because now and always, the interests of investors are inextricably linked to strong compliance.
In a nutshell, Chairman Cox admonishes companies to take a "long-term view on compliance," and to accept that such a view countenances a "constant commitment to investors." He warns the industry that no favor will be granted "because a company made a cost-cutting decision to minimize their compliance budget." Some would call them fightin' words. I think the Chairman is voicing sound, old-fashioned, commonsense. More to the point, I would no more expect beleaguered broker-dealers to cut corners by laying off compliance staff than I would expect, for example, the SEC to start laying off its examiners or lawyers. That would not only be a foolish economy but given the need for enhanced regulation, it would be absurd for the SEC to downsize when its expertise is most needed. I'm sure Commissioner Cox would agree. I'm sure Director Richards would agree. I'm sure every regulatory organization would agree that now is not the time to reduce staff and cut costs.
They Did What???
Of course, while everyone is agreeing and while Director Richards and Chariman Cox are warning the industry against reducing compliance staff, I see this little nugget from Andrew Ackerman in the Bond Buyer: FINRA to Cut 10%, Asks 300 to Accept Voluntary Early Retirement (November 21, 2008). Ackerman notes that
The early retirement offers come amid the broad financial crisis, which is likely to result in a decline of the self-regulator's revenues, according to sources.
Puzzling,no? The SEC posts an Open Letter with links to comments by Director Thompson and Chairman Cox--and that letter pointedly warns Wall Street against reductions in staff and cost cutting. Even more ominous, the SEC's Chair warns about the need for long-term, constant commitment and pointedly raises the specter of possible punitive actions if such reductions result in violations. In the face of all of this, the Financial Industry Regulatory Authority (FINRA) seems to have embarked on a reduction in force of some 10% of its workforce. Some might see hypocrisy in the comments and conduct of our market regulators. Some might see yet more examples of the historic mentality of do-as-I-say-not-as-I-do. Others might see the unending exasperation of regulators who continue to step on each others' toes while comically regulating (or failing to do so) with all the apparent efficiency of the Keystone Kops.
Me? I don't see much of anything anymore. I just see far too many threats and far too much posturing. I see an entrenched bureaucracy that clutters our airwaves and in-boxes with too much self-serving nonsense. Like we needed an Open Letter warning against the dangers of cost cutting and layoffs?
I no longer place much value in anything that any regulator promises. Then again, I see that I am not alone in my admiration for Napoleon. It seems that many of those regulating Wall Street are familiar with the adage about the key to success. Promise everything. Deliver nothing. Perhaps the only solace I have these days is in knowing that for all his brilliance, Napoleon had his Waterloo. We can only hope that Congress will soon put this inept regulatory system out of its misery--out of our misery._popupControl();