Читать книгу Financial Regulation and Compliance - Kotz H. David - Страница 5

Few topics in finance are more confusing to outsiders than regulation. There are many among us who understand financial valuation and even the technical intricacies of the esoteric contingent claims analysis, copula functions, and risk mapping algorithms. But the supervision and regulation of banks, much less securities firms, tend to make the eyes of most financial analysts glaze over.

Yet the compliance function is one of the most important, and valuable, functions in any financial institution. Compliance is more than just records retention. As recent crisis-era litigation has shown, managing compliance properly can help reduce vast legal costs later. While we may not want to admit it, compliance creates value.

The problem is that not many people – whether they be financial practitioners, policymakers, or sometimes even compliance professionals – really understand compliance. Part of the problem is the unique path dependence that has created a fractured supervisory structure with some delineations by institution and some by function, creating considerable regulatory overlap. Even understanding who is responsible for what, in any real sense, after accounting for “primary” supervisory responsibility, can be massively confusing.

This became apparent to me when I began to advise staff at the European Union (EU) Parliament on their own reforms to financial regulation. At the time the U.S. was (and is still) urging them to just adopt U.S. institutional features, which EU staff did not understand. Thereupon, we embarked on an almost two-year project to educate the staff in this massively tangled and – to the uninitiated – thoroughly confusing framework for U.S. financial supervision.

The problem became even worse when we ran into the subject of administrative law – that is, regulation – and also its enforcement, venues for defense, and appeal. While I was able to treat the subjects in just a few areas (primarily banking) with a wide variety of existing resources, the present manuscript pulls together far more material in a single volume than ever before published on the subject.

Moreover, this book's treatment of securities regulation pushes into a much newer area of financial supervision, covering the securities sector. Historically, only banks were supervised – that is, subjected to examinations that required producing confidential records to supervisory personnel with the threat of sanctions. But in recent years, the SEC's examination function has grown significantly, and if some policymakers have their way, it will continue to grow.

In conjunction with such growth, some of the more troubling aspects of bank regulation seem to be spilling over into securities regulation. In the 2015 examination priorities of the Office of Compliance Inspections and Examinations (OCIE), the SEC is putting more emphasis on “using data analytics to identify signals of potential illegal activity.” The idea is that trading or payment patterns can indicate firms or brokers that are “potentially engaged in fraudulent and/or other potential illegal activity.” Thus, analytical exercises are used to determine who might run afoul of anti-money laundering or other related restrictions.

The idea is generally good, but the implementation in the banking world has been fraught with controversy. The U.S. Treasury has pushed bank regulators to undertake similar programs related to Operation Choke Point in recent years. In addition, recently, the FDIC has sought to disassociate itself from the approach after some banks and companies were tremendously hurt by investigations that turned out to be for naught. The point is that while certain patterns of business behavior might be associated with criminal activity (like high chargeback rates on credit cards in the retail sector), there is little to distinguish those from legitimate activity in business that merely operates on almost identical principles. That is why fraud works.

The author of this book is the former Inspector General of the SEC and has been fortunate to see firsthand how regulations are supposed to work, and how they are often perceived by the regulated community. I have been an admirer of his work at the SEC for quite some time, as he was able to conduct meaningful oversight of a very important financial regulator during a very significant time period in our nation's financial history. In this book, he draws on his own vast experience to provide cogent hands-on advice to compliance professionals in a myriad of important areas. He also brings together a very unique collection of expertise from many individuals, including several former senior-level governmental officials which only add to the comprehensiveness and value of this book. It is a must-read for compliance professionals in the financial arena, and, as supervisory principles are applied in financial market regulation, the present manuscript will be all the more important to manage the new regulatory and administrative law burdens that will be imposed on the industry.

Joseph R. Mason, the Hermann Moyse, Jr./ Louisiana Bankers Association Endowed Chair of Banking and Professor of Finance at Louisiana State University and Senior Fellow at the Wharton School.