Chairman of SEC Says “Light Touch” Hurt Agency

When she was appointed by President Obama in January 2009, she made it a priority to diversify the staff’s expertise by hiring people with knowledge of credit ratings, derivatives, financial planning, to name a few topics.  Speaking at the Securities Industry and Financial Markets Association’s (SIFMA) annual meeting in New York City yesterday, Shapiro said the SEC has succeeded at becoming more knowledgeable across the wide range of areas it is mandated to regulate. 

Another way she set out to enhance the Commission’s credibility was by doing a better job of reaching out to the industry itself, “to help inform our rule making process,” said Schapiro.  She said the Commission has received tens of thousands of letters from people in the industry related to the Dodd-Frank financial reform act, and the Commission will take any suggestions under serious consideration.   

Charlie Rose, host and executive editor of the Charlie Rose program, who conducted the interview of Schapiro, asked for her thoughts on what happened on May 6^th–the infamous “Flash Crash.” Schapiro described the day as being “very unfortunate” for markets and investors; she understands that it scared investors deeply. She is most concerned, however, that the new-found fear goes deeper than normal stock market jitters:  “Stocks can go up and down, but integrity always has to be there,” she said.  “If they pull out for that reason, that’s terrible.  It’s important for investors to feel they can participate in the long run.”

Rose asked what lessons the SEC took away from the Madoff scandal. Calling it a “phenomenal tragedy,” Schapiro said the Commission has been trying to make it a “real learning experience.” She said the Commission failed largely due to a lack of communication amongst the numerous departments, something it is ardently trying to fix.   

Schapiro also said she has made the approximately 3,800 staff members read letters sent to the SEC written by victims of Madoff’s treachery; “not just to make us feel badly, but to see that when we do our jobs well, we can prevent harm.”  The Commission has established more training and more collaboration within the agency, she said.  And she pointed out that there is a new section on the SEC’s Web site to highlight “post-Madoff reforms.”

Lastly, Rose asked Schapiro what the industry should learn in the wake of the economic crisis.  She said there are many lessons to learn, a major one being not to take on risk that simply doesn’t make sense. She wants the industry to reinforce the notion that the clients’ interest should come before the advisers’ or firms’. She would like to see senior management take on a more active role in decision-making and especially wants compensation to be reevaluated–high levels of risk for high returns should not automatically mean higher compensation.