Regulatory power on Wall Street has increased. There’s no denying it. Since the 2008 Financial Crisis both the populist view and much of Washington opinion has put the blame squarely on the shoulders of investment banks and hedge funds. The laying of the blame for the incredibly complicated circumstances at the feet of one player in the game seems more a matter of political and media expediency than anything else. Whether or not you agree on the causes of the crisis one thing is certain, regulatory authorities have increased pressure on firms. With the greater scrutiny financial institutions have begun to enforce regulations of their own to keep them from under an even stricter governmental glare.
The social media explosion in the last decade ha s given the means of instant communication to everybody on Wall Street and for all of its benefits it is also causing trouble. We reported today that many firms have taken to blocking their employees access to social network and even private email to avoid a scandal over information leakage. Our information suggests that many hedge funds are blocking Twitter to avoid a scandal over the leakage of sensitive information. If information came out, mistakenly or otherwise, across a social media account of a firm’s dealings the SEC could step in and impose fines or worse.
The oversight has also lead to firms employing Compliance Officers to oversee their own affairs from within and ensure they don’t run foul of the regulating agencies. With the waxing of the Dodd-Frank Bill on greater regulation the rules of the game will change significantly and firms will have to be certain not to step over the boundaries imposed by Washington. According to a CNN article there were over 100 listings for compliance officers on TheLadders.com, a recruiting site.
An interesting twist on the increasing self regulation is the lengths some funds are going to to avoid the rules entirely. We reported in January that funds were making moves to be listed as Family Office rather than their traditional titles. This allows them to avoid regulation and continue to operate as a fund, though under certain restrictions. Read the full article to find just how far funds are going to evade the far-reaching regulations.
Hedge funds and investment banks are vital to the workings of the economy. They provide valuable capital to businesses and keep the economy growing. The need for them to spend more time and money dotting i’s and crossing t’s means less time doing what they are good at. Let’s hope regulators figure this out soon.