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Banking and Finance

Be Mindful of Compliance Costs

That story is title does not come from me; it's a quote from  Commissioner Troy A. Paredes of the Securities and Exchange Commission.

We cannot simply focus on the costs and benefits of a single rule change on a stand-alone basis. It is the totality of the regulatory infrastructure that impacts the private sector. As part of this analysis, we need to be mindful of compliance costs. It is costly for firms to comply with the regulatory obligations they confront both in terms of out-of-pocket expenditures, as well as the opportunity cost of the time and effort of personnel that could have been directed toward other productive endeavors. Indeed, the compliance burden on investment advisers has increased of late due to, for example, the need to comply with the new "pay-to-play" rule restricting political contributions; the recent amendments to Part 2 of Form ADV concerning the preparation and delivery of a "brochure" and "brochure supplements" to advisory clients; and the recent amendments to the custody rule.

The Commissioner was giving a speech to the Hedge Fund Regulation and Current Developments symposium at the Center for Law, Economics & Finance at the The George Washington University Law School on June 8.

There was lots of blame thrown at the hedge fund industry after the financial crisis of 2008 with very little data to support the accusations.  Commissioner Parades also addressed this point:

Regulatory decision making should be supported by data, to the extent available, and economic analysis. This is particularly important to stress insofar as the SEC is concerned, because the SEC is an agency that traditionally has overwhelmingly been comprised of lawyers. Empirical analysis must be much more central to decision making at the SEC than has been the case.

Commissioner Parades is just one of five commissioners, so his position is not necessarily a controlling influence. But it's still good to see that at least part of the SEC is focusing on there being better regulatory, not just more regulatory control


Speech by SEC Commissioner: Remarks at the Symposium on "Hedge Fund Regulation and Current Developments"

For additional commentary on developments in compliance and ethics, visit Compliance Building, a blog hosted by Doug Cornelius.

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