Fri, Apr 27, 2018
The SEC Looks to the Most Vulnerable
Executive Summary
Apr 27, 2018
Too Much of a Good Thing?
Apr 18, 2018
Too Much Too Soon?
Apr 19, 2018
Cyber Risks Beyond Your Four Walls
Apr 19, 2018
Brexit: The Catalyst for Substance Over Style in Asset Management
Apr 19, 2018
A Reality Check
Apr 19, 2018
New Priorities at the SEC
Apr 19, 2018
The Consequences of Concentration in Private Equity
Apr 19, 2018
The SEC Looks to the Most Vulnerable
Apr 27, 2018
Client Protection at the Heart of MiFID II
Apr 19, 2018
The Paradise Papers: The Unreported Facts
Apr 19, 2018
What’s in a Name? It’s a Question Regulators Are Increasingly Asking
Apr 19, 2018
New Guidance From The Trump Administration Regarding FCPA Prosecutions
Apr 19, 2018
Lifting the Veil
Apr 19, 2018
A Fool’s Errand
Apr 19, 2018
Alternative Data Brings Different Problems
Apr 19, 2018
The Price of Everything but the Value of Nothing
Apr 19, 2018
Counting the Cost
Apr 19, 2018
A Big Step Towards Consistency in Fair Value
Apr 19, 2018
Finally Addressing Forgotten Assets
Apr 19, 2018
- View all articles
Read Global Regulatory Outlook 2018
“There’s just no room for someone who ruins someone else’s life using the capital markets to do so,” he went on.1 In fact, though, that’s not true. There’s all too much room; as Clayton noted, the continuing scale of retail fraud is surprising.
Examples are shocking:
- An adviser who raised more than $6 million from elderly investors, promising to pay their bills, handle their taxes and invest on their behalf, but instead channelc1ed the money to himself, business expenses and friends.2
- Boiler room cold callers pressuring senior citizens to purchase penny stocks and telling those complaining to “get a gun and blow [their] head off.”3
- Investment scams targeting online dating sites, offering companionship and love—for a modest investment.4
Clayton is right to condemn such activity, but he was less vocal on why retail fraud remains so rampant. One key reason is, arguably, the Dodd-Frank Act.
With Dodd-Frank, Congress got things completely backward. It directed the SEC to unregister essentially all small retail investment advisers—those managing $150 million or less—to concentrate on larger firms. The logic of doing so, in the aftermath of the financial crisis, was to focus on systemic risks to the financial system. The government wanted greater oversight of large institutional investors and, specifically, private fund managers.
In fact, it’s hard to think of anything done under the Act that has done less to contain or manage systemic risk; rather, activity has focused almost exclusively on increasing institutional investor protection—cracking down on improper allocation of expenses, for example—and other breaches of fiduciary duty.
No one would argue that institutional investors should not be protected from fraud. But, with Dodd-Frank, it was done at the expense of small investors—“Mr. & Mrs. 401(k),” as Clayton calls them. Removing the small advisers who manage their money from federal oversight left them to state regulators, where oversight and enforcement processes are inconsistent at best and nonexistent at worst. That leaves retail investors dangerously exposed, while conversely, institutional investors can now depend upon the government—in addition to their own sophisticated due diligence teams—to detect fraud, mismanagement and waste.
President Trump was elected promising to dismantle Dodd-Frank. We’re not likely to see much material revision to it soon. If the SEC can address its historic mistake regarding retail investor protection, though, it will be an achievement worth noting.
Sources:
1 http://videos.uschamber.com/detail/videos/latest-videos/video/5522333805001/a-discussion-with-sec-chairman-jay-clayton?autoStart=true
2 https://www.sec.gov/litigation/litreleases/2017/lr23995.htm
3 https://uk.reuters.com/article/usa-crime-boilerroom/u-s-charges-14-over-147-mln-new-york-boiler-room-scam-idUKL1N1K327G
4 https://www.sec.gov/news/pressrelease/2016-116.html
Financial Services Compliance and Regulation
End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.
Financial Crime Prevention
Financial crime risk has again risen to the top of the regulatory agenda, and remains one of the most immediate risks for many firms, with criminals constantly seeking new ways to circumvent protective controls.
U.S. Compliance Services
Comprehensive support for asset managers registering in the U.S.
European Compliance Services
Comprehensive compliance and regulatory support for EU firms.
French Regulation
A range of support from a review of your suitability arrangements, training, controls and procedures to conducting bespoke reviews on past business activities.
UK Compliance Services
Comprehensive compliance and regulatory support for FCA authorized firms.
Irish Regulation
Kroll is uniquely placed to assist firms in negotiating the regulatory landscape.
Singapore Regulation
Kroll's experienced team provides practical compliance and regulatory advice to financial institutions in Singapore.
Channel Islands Regulation
Kroll provides a range of regulatory and compliance consulting services for firms registered in the Channel Islands.
Regulatory Advice and Consulting Services
Assistance to develop, implement, and manage global compliance and regulatory consulting programs.