At a recent New York meeting featuring four former SEC chairmen, Harvey Pitt, who was at the SEC helm between 2001 and 2003, leapt to the defence of US regulators. He said at the roundtable, hosted by the Council on Foreign Relations, that the global marketplace was being divided between those companies that could meet higher regulatory standards and those that could not. “What we are witnessing globally is that regulatory standards are increasing, not just in the US,” he argued.
We’re not sure that Pitt’s views are shared in the boardrooms of many US banks. On the day he made his remarks a survey was published that indicated that many US banks believe they are at a competitive disadvantage in foreign markets just because of the US regulations they are forced to operate under.
It’s not just that US banks are still settling with the SEC the one-off investigations into their businesses – in March Bear Stearns was the latest to fork out $250 million to end a two-year investigation. Beyond that, banks are spending an increasing amount of time and money keeping the regulators away from their doors in the first place.
The burden, often the result of duplication of surveillance by the various regulatory agencies, is a heavy one. The survey, by the Securities Industry Association, reports, for example, that the average US securities firm received 231 compliance enquiries over the previous 12 months, nearly one every working day, with the SEC and the NASD accounting for nearly three-quarters of that.
The costs are also pretty horrific. The SIA survey reports that the cost of compliance to the securities industry as a whole in 2005 was $25 billion, compared with $13 billion in 2002. It estimates that the increase in cost between 2002 and 2005 amounted to almost 5% of the industry’s annual net revenues. That increase could end up being passed on to investors, the very group whose interests the SEC, and other regulatory bodies, are trying to protect.
In the meantime, it’s a good job that banks such has Goldman Sachs, Lehman Brothers and Bear Stearns have had such a strong first quarter. They need the cash to keep the regulators at bay.
