The New Commandments, Part 1
Most Americans don’t know it, but the financial industry may be the most highly regulated sector in the economy. Because each new rule passed by FINRA, the SEC, or the five national banking regulators unquestionably works to the good of the hapless investor or depositor, none may be removed and only more may be added.
With each new crisis, the Internet collapse or the credit crunch being the latest, another wave of reform ensues, so the cobweb of rules grows more complex and surer to snare those who would merely wish to be honest and benefit their customers. Yet even with this protection, the result seems to be an individual investor ever more willing to turn over his due diligence to the government apparatus.
Moreover, larger and more complex messes keep erupting, such as the implosion of banks, hedge funds, government agencies, credit insurers, brokerage firms, and even whole towns such as Norvik, Norway, an arctic seaport that lost at least $64 million on securities that included California mortgages.
Big brother is watching, even more carefully than the KGB was listening in Soviet Russia. Employees at many if not most financial industry firms no longer use email save to distribute preapproved material. Even the most innocuous, inadvertent slip of the finger on the keyboard could bar one from the industry for life. A senior manager at each firm must read through the email of all employees, plucking out potential violations, assigning retraining modules, and levying penalties. If the firm does not self-report problems (and not just those in email), it is doubly at risk with the regulators.
Insider trading was once clear cut, such as buying before an announced takeover based upon information that was not disseminated to the public.
Now it can be an analyst forgetting to put into a disclaimer his ownership of 100 shares of a company mentioned in passing in a report. Or if he trades in such a stock within 30 days of a routine quarterly earnings report that has no influence upon the price of said security, even if his holding is disclosed.
Worse yet, he cannot even own 1 percent of a fund that holds a position in something he writes about. Even a financial advisor with the most limited scope of business and an intense amount of legal and compliance support staff quakes at the thought of a routine regulatory audit, for there is always something that could be written up.
Not all auditors agree upon what rules apply and how to interpret them, opening up the possibility of debate wherein the wisest course of action is often to just agree with the government, since it could always threaten other, more stringent action. David simply cannot defeat Goliath when his slingshot is illegal.