Time for an in-depth look at regulatory duplication

Regulators should launch a full-scale investigation into how to avoid putting firms into double jeopardy.

Robert W. Cook, president and CEO of the Financial Industry Regulatory Authority Inc., put his finger on an important issue — regulatory duplication — in a speech at the New Special Study Conference at Columbia University last month.

The implications of that duplication often include overlapping enforcement, which was a hot topic at the Securities Industry and Financial Markets Association compliance and legal seminar last month.

Participants at the SIFMA seminar were concerned about cases where the Securities and Exchange Commission, Finra and sometimes state regulators all levy fines or negotiate separate costly settlements for the same breach. Too often it seems like simply a grab for money by each of the regulators.

Mr. Cook, in his Columbia speech, asked the question: “Is the relationship between the SEC, Finra and the other [self-regulatory organizations] optimally designed to avoid regulatory duplication? What should be the allocation of responsibilities between the SEC and the SROs in terms of cross-market surveillance … or in terms of member regulation?”

Judging by the tenor of the discussion at the SIFMA seminar, many if not most industry participants would answer a resounding “no” to the first question. The answer to the second question likely would be: Get your acts together.

Speaking at the SIFMA seminar, Mr. Cook acknowledged that regulators overlap and can tend to take action in the same area. “We need to identify when this is happening. We need to be cognizant of the fact that we are not the only regulator in this space,” he said.

Mr. Cook can’t change the system on his own, but having asked the question he should follow up, take an in-depth look at the complaints of industry participants (his listening tour with broker-dealers and others will help with this), and then start working with the SEC and other SROs, and even state authorities, to begin to eliminate duplication where possible.

Not only do multiple fines for the same breach seem unfair, but the regulatory overlap, involving multiple regulators pursuing the same lines of investigation, is inefficient and wasteful of resources.

At the InvestmentNews Regulatory Roundtable on March 31, the topic of multiple regulators issuing differing rules and guidance on the same topic — as well as overlapping enforcement — was a recurring point of frustration. Now is the time for Mr. Cook to press his regulatory colleagues to join him in minimizing unnecessary pain, where it exists.