Integritas et Probabiliter

January 12, 2010

When you think about a Wall Street regulatory organization -- be that federal, state, or self-regulatory -- you would like to think that the words "integrity" and "credibility" would sort of find their way on to whatever escutcheon or seal is used to depict the organization. They sure as hell spend enough bucks hiring some fancy-schmanzy public relations firm to re-brand tarnished images these days.  Of course, it's nice that we have those new regulatory websites and blogs.  It's nice that they got everyone all gussied up for the headshots,the webcasts, and videos. Darlings, you all look fah-bulous!

Still, with all the new logos floating around, couldn't someone find space to add the Latin words Integritas and Probabiliter? As has been made all too clear in recent months, those concepts have not always guided the investigations or prosecutions by Wall Street's cops.  Be it the Madoff affair or the ongoing Stanford Financial matter, it seems that those who regulate Wall Street have not always done so with an abundance of integrity and credibility.

Sadly, as the Congressional investigations proceed and as the Press ferrets out yet more failed regulation, we learn that those in charge of policing the financial markets have too often looked the other way and have too often been lulled into a dangerous, false complacency.  For some at the helm there was time to sit on the boards of public companies, attend industry conferences, and participate in far too many public relations photo opportunities.
Regulating Wall Street should never have been a part-time undertaking.  There should never have been -- and should not now be -- spare time when it comes to walking the beat and slapping on the cuffs. 

The investing public has a right to expect that it's not simply nonsense as usual but that there is some sense of the failed mission, some willingness to impose accountability, and a rededication to getting things right.
The days of the "Politics of Regulation" and the "Business of Regulation" should be behind us.  But they are not.  Instead, Wall Street's cops seem to still not get it.  They still do not seem to fully grasp that 100% of their attention and manpower must be devoted to nothing other than surveillance, detection, and prosecution.  If it's not about regulation, then you can't afford to waste your time or dollars on it. 

Bloomberg's Susan Antilla turns her spotlight on the Financial Industry Regulatory Authority (FINRA)  in an article titled: Regulator's Client Pitch Hit Little Guy in Head
(January 12, 2010  Bloomberg). Seems that FINRA sees business opportunities in arbitration.  Consider the following brief excerpts from Antilla's provocative article:

[I]t's bad enough that Wall Street's self-regulatory organization is part of a system that typically forces employees and customers to use a private justice process, rather than the courts, for everything from stock-churning cases to sexual harassment complaints. Do we really want to spread Finra's brand of forced arbitration beyond Wall Street?

Even worse is the prospect of Finra, the supposedly neutral regulator, trying to expand its role by soliciting businesses. Look at it this way: If a retired judge signed up members of the local chamber of commerce as clients of his cool new mediation service, would you want him to preside over your customer complaint? Or would you want to go to court?

Antilla's column is a must-read for those who think that we've seen it all -- clearly, we haven't.  This is an eye opener.