SEC Staffing Up Fast To Monitor...Hedge Funds, Derivative Traders

Friday, March 16, 2012 11:05
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SEC Staffing Up Fast To Monitor...Hedge Funds, Derivative Traders

Tags: sec

Recent news that the SEC has "hired 130 new examiners" may only frustrate and mislead those who want clarification on RIA oversight. 

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Carlo di Fiorio, who runs the SEC's Office of Compliance, Inspections, and Examinations, told members of the Investment Adviser Association that the regulator has in fact been doing a lot of hiring lately.

 

But from the way his comments are being reported, it looks like these examiners will spend a lot of their time chasing hedge funds and digging into dubious derivative trades.

 

They probably won't be doing much work with RIAs that work with private clients.

 

By the way, this is the same Carlo di Fiorio who had to tell Congress a few months ago that the SEC will probably never be able to supervise RIAs effectively.

 

If each of those 130 new examiners took two weeks to audit one RIA registrant, they'd work their way through the 25,000 advisors in the channel by roughly the end of 2019 -- counting holidays and vacations.

 

That may seem dismal, but right now it takes the 900 dedicated RIA examiners at the SEC about 12 years to work their way through the channel.

 

In other words, di Fiorio was right. Throwing human resources at the problem of supervision will probably never work until the SEC finds a way to work more efficiently.

 

That means automation, screening, all the high-tech tricks the IRS has resorted to in its efforts to recover more revenue with fewer real resources.

 

Even a simple ADV screen would probably shave a few months off the half year that it currently takes an SEC examiner to audit a typical RIA.

 

I'm not going to tell the SEC how to spend its money, but six months to run an audit of even the biggest RIA is too long.

 

After all, the advisory firm has to run its reports at least quarterly. Why does it take the SEC twice as long to review the books when it finally works its way around to them?

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