Gary Gensler, the newly appointed chairman of the Securities and Exchange Commission (SEC), the premier regulator of financial services firms and Wall Street, has a big problem.
Gensler took office when Wall Street had gone wild. During the pandemic, young, novice “investors” fell in love with meme stocks and aggressively traded on Robinhood. Cryptocurrencies became all the rage and a number of digital asset exchanges and platforms emerged to service the overwhelming demand for buying, selling and trading Bitcoin, Dogecoin, Ethereum and other cryptocurrencies.
There was a boom in underwriting IPOs and SPACs. Questions arose over Chinese stocks listed and traded on U.S. exchanges and the practice of payment for order flow. Investors complained of activities that suspiciously looked like pump-and-dump schemes and attempts at market manipulations. While this is happening, there are also the usual shenanigans at big investment banks, hedge funds, private equity firms and an array of financial institutions that need attention.
Gensler shared his concern with CNBC, saying about the regulatory agency, “We are short-staffed.” He continued, “It might sound odd to say that [about] an agency with 4,400 remarkable, dedicated staff working remotely during this challenging pandemic. But that’s 4% to 5% less than we had just five years ago.”
The lack of staffing and proliferation of new types of firms and products shouldn’t be too surprising to industry insiders. In the aftermath of the financial crisis, compliance and regulations were made a top priority. The carnage created during this period created the need for greater oversight of the securities markets, bankers, brokers and traders.
Regulators cracked down on money laundering, insider trading, Ponzi schemes and other types of abusive and violative practices. The need for risk, audit, legal, compliance, privacy, regulatory and related professionals was insatiable. Compliance went from a sleepy back office type of job into one of the hottest and fastest growing professions on Wall Street.
Things quickly changed when President Donald Trump took office. His administration made deregulation of the financial markets and Corporate America a top priority. Trump contended that with fewer rules and regulations, the “animal spirits” of companies will kick into gear. Companies, unencumbered by onerous regulatory burdens, would be set free to aggressively pursue bold business pursuits. Along with high taxes, regulations were viewed by Trump as an anathema to corporate growth and profits. He ordered that new rules will not be needed and existing ones should be scrutinized and thrown out, as he famously proclaimed, “For every new rule, two must be revoked.”
Regulatory budgets were cut and regulatory personnel felt that they weren’t appreciated or adequately supported. Many left to pursue other opportunities. Savvy Wall Street players noticed the shift in policy and we’ve now seen the results.
The SEC and other financial regulators, such as the Comptroller of the Currency, Consumer Financial Protection Bureau, Commodity Futures Trading Commission, Federal Reserve Bank and the Financial Industry Regulatory Authority, a self-regulatory organization, are likely to request and receive funding from President Joe Biden’s administration, especially as Senators Elizabeth Warren and Bernie Sanders have been outspoken with their dislike and distrust of Wall Street.
It’s reasonable to believe that there will be an aggressive hiring campaign at the SEC and other regulatory agencies. Strict examinations, audits and reviews of the securities and cryptocurrency industries will occur. To keep the banks and financial institutions safe and out of the crosshairs of the regulatory bodies, there may be a substantial increase in hiring of compliance, risk, audit, legal and regulatory professionals.
Source: Forbes
