The typical dream of the budding financial professional is not to wind up in a stuffy government job after spending a small fortune on a competitive business school. Government regulatory jobs don’t pay as well compared as jobs in the trenches of the industry. Still, these regulator roles can make you richer in the long run.
It’s not about making friends with the referees. The revolving door between government regulatory agencies and global finance is spun more by what people know rather than who they know or worked with. Agency veterans have insight into recent practices, interests and priorities. When they go to the private sector they probably can’t be counted on to use their contacts to make problems go away.
But, they can offer advice that can keep firms out of trouble in the first place and that is worth serious money; a firm can pay up to add a former regulator to its compliance staff and still save if it avoids having to engage outside counsel to take care of something serious.
The other advantage to spending a few years making government scale pay is that it’s a differentiator. Not everybody can say they worked at the Securities and Exchange Commission, the U.S. Treasury or the Financial Services Administration. The post represents specialized knowledge about a topic that even high-level outsiders find arcane.
The revolving door has been rampant for some time, as former regulatory officials across the globe win sometimes-symbolic jobs at big banks. There is PR value here for a troubled financial services firm. Hiring former regulators says “We’re serious about cleaning up our act.”
In April, a former senior adviser to the FSA was named Nomura’s chief executive for Europe, the Middle East and Africa. Last year (after it was stung by the LIBOR-fixing scandal), Barclays plucked Sir Hector Sants, the former FSA head, to helm compliance and government relations activities. The former head of Germany’s central bank, Axel Weber, was named chairman of UBS last year after that bank had run afoul of U.S. regulators seeking global tax cheats.
The SEC has had a major problem keeping people in top posts. Mary Jo White became the agency’s third boss to quit in nine months. Four of the SEC’s five divisional chiefs have left, including those overseeing trading and markets, corporation finance and enforcement, along with four directors across the U.S.
Consulting firm CamberView Partners last week announced the appointment of Eileen Rominger, ex-head of the SEC's investment-management division, as a senior adviser.
Former SEC Mary Schapiro quit to join consulting Promontory Financial Group and several people she brought into SEC moved on to the private sector.
An expanded ethics rule that takes effect in January would ban all SEC employees who make more than $155,440 a year from contacting old colleagues for one year after leaving the agency.
But is that enough and has this game of musical chairs already harmed the industry?
The SEC’s aggressive campaign to punish those responsible for peddling the toxic securities that sparked the global financial crisis has been reduced to a simmer. The SEC has collected some $2.73 billion in penalties and restitution from Wall Street titans, a drop in the bucket of the estimated $14 trillion in damages resulting from the financial crisis.
Could the lack of long-standing leadership be to blame?
There’s evidence that pushing too hard to punish can cost you a job at the SEC.
Ex-SEC investigator Gary Aguirre won a $755,000 wrongful termination settlement against the agency after he was fired for trying to snag then-future Morgan Stanley chief John Mack in an insider trading case.
Wall Street’s major players rarely get more than a hefty fine and walk away without having to admit any wrongdoing.
“It’s really hard to see why the SEC isn’t using all of its weapons to deter fraud,” Sen. Charles E. Grassley said. “It makes already weak punishment even weaker by waiving the regulations that impose significant consequences on the companies that settle fraud charges. No wonder recidivism is such a problem.”
These agencies have smaller fish to fry.
As Harvard law professor Larry Lessig blogged earlier this year, referring to the Justice Department’s prosecution of late Internet activist Aaron Swartz: "we live in a world where the architects of the financial crisis regularly dine at the White House."
It’s not as if big banks can sit back and relax. Attorney General Eric Holder says the Justice Department is planning to announce a slew of new crisis-based cases against global behemoths.
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