Since 2007, regulators in the US, UK and Hong Kong have expanded their operations significantly in pursuit of their stated goals. Kinetic Partners’ research shows that budgets and staffing levels at regulatory agencies have grown substantially in the last seven years, with a focus on increased surveillance, recruiting more specialized staff, and technological innovation.
From 2006 to 2013, the SEC, FCA and SFC have increased the number of employees by approximately 22%, 53% and 51% respectively. During that same period, the SEC, FCA and SFC increased their overall expenditure by 62%, 48% and 120%.
Where then are the regulators focusing their efforts and money? We now live in a world where industry developments affect the nature of how the marketplace is regulated. Each regulator has sought to adjust its approach to keep up with the constant change of a dynamic marketplace. In particular, they have poured significant resources into increased surveillance, especially as it relates to operational or tactical infrastructural enhancement and technological innovation.
Over recent years, the increased regulatory headcount in the US, UK and Hong Kong appears to have outpaced the growth of personnel in the financial services industry. Indeed, it seems that the ratio of regulators to regulated persons is narrowing, and Kinetic Partners expects this trend to continue in the future.
Regulators are recruiting more experienced and specialized personnel, especially those with advanced forensic and technological skills. This has enabled regulators to focus on high-frequency trading and new areas, such as dark pools and market abuse. The regulators also recruit ex-traders to ensure they have the expertise when understanding investment strategies. We therefore expect a greater focus on strong technological and industry trading experience in future regulatory hires.
With more staff, greater specialization, advanced tools and infrastructure, regulators have been able to expand the scope of their surveillance over recent years. This in turn has yielded more instances of enforcement and a greater understanding of how best to foster fairness, integrity and accountability in financial markets.