Wall Street

When the financial focus shifts to regulation...

Jim Kim — Thu, 02 Oct 2008 13:00:24 -0400

Hopefully the bailout package that passed will stabilize the markets to the point that the world can start discussing the real issue: how to regulate the financial markets and Wall Street. We've noted that this discussion has started already, and the perceived failures of Sarbanes-Oxley have been invoked. But that should not deter people from trying to establish a set of rules that can eliminate the excesses and return of sanity to Wall Street. The issues are many. What to do with hedge funds? What to do abut leverage? How to regulates credit derivatives? These will not be easy to answer, and politics will bleed into the discussion. But it is a discussion that must take place. The New York Times weighs in with an insightful column that makes it clear how tricky all of this will be.

A delay in IFRS timetable release

Jim Kim — Thu, 02 Oct 2008 12:59:54 -0400

Just two weeks ago, international financial reporting standards (IFRS) was a big deal. Companies were anxiously awaiting word of a concrete timetable, one that the SEC had promised. But then came the pyrotechnics on Wall Street, and the promised release of the timetable never happened. No one is quite sure when it is coming. However, CFO.com suggests that the issue isn't the credit crunch, which would be easy to assume. The real issue may be that opposition has cropped up as of late. The article notes that Public Company Accounting Oversight Board member Charles Niemeier has spoken out against IFRS. Investor advocates are also making their views known. The timetable, and thus the actual implementation, likely will be delayed even more as the election--and all the turnover that entails--looms large.

For more:
- here's the CFO.com article

Gartner: More Sarbox-like regulation coming

Jim Kim — Sat, 20 Sep 2008 21:30:11 -0400

Speaking of the possible new regulation to stem from the pyrotechnics on Wall Street, "the shadow will be longer than Enron, Sarbanes-Oxley, HIPAA, or any other regulation of modern times," said John Bace, VP at Gartners, to 300 CIOs. That's a pretty strong statement. I think it likely we'll see something in the wake of the credit meltdown. Hopefully, banks will have built scaleable compliance programs that accommodate new regulations. This is where your foresight can really pay off. Some people are calling for a complete overhaul of financial regulatory system. Some would scrap even the upcoming Basel II. We'll hear a lot about this going forward. The financial services industry should anticipate great change over the next few years.

For more:
- here's a CRN article
- here's a look at how the rules ought to change in the Wall Street Journal

Wall Street lobbyists find way around meal rules

Jim Kim — Thu, 28 Aug 2008 21:05:22 -0400

If Sarbanes-Oxley did anything, it put ethics on the front burner. More companies paid lip service to the idea of ethics, if only for public relations purposes. But when the chips are down, ethics take a back seat. When the ARS market is cratering, the sales mantra is 'move product now, feel bad later.' And when it comes to influencing lawmakers, why let a silly little law, one that prohibits lobbyists from buying meals for lawmakers, get in the way. Financial Week reports that top Wall Street lobbyists put together a brunch for influential Democrats in Denver. But watchdogs got wind of the event and protested. So the lobbyists decided to cut the French Toast into bite-sized pieces and serve them with toothpicks, which make the event a reception not a meal--which is OK under the law. Financial Week notes that no plans have been announced regarding how the bacon and eggs will be served.

For more:
- here's the Financial Week article

Related Article:
Has Sarbox really changed attitudes?

Be careful about orphaned accounts

Jim Kim — Wed, 20 Aug 2008 17:56:56 -0400

In the wake of the Jerome Kerviel "rogue trader" scandal at Societe Generale, a lot of banks have stepped up efforts to prevent such a scandal. But companies across the board need to think about whether their systems could accommodate internal rogues. One theme that has bubbled up: orphaned accounts--accounts that belong to former employees, or those that no longer need access. Some think Kerviel used such accounts to game the system. This is a bigger issue in the wake of downsizing efforts, especially on Wall Street. So there's renewed focus on access management and technology. It can get very complex at big firms, and vendors certainly see opportunity--for everything from real-time monitoring to biometric solutions. A lot of problems occur because of practices--over-credentialing people, for example--in the name of speed. Article (FinanceTech)

Would more contingent liabilities disclosure make Sarbox compliance hard?

Jim Kim — Mon, 18 Aug 2008 08:07:58 -0400

The FASB is responding to what it says is investor concern that current rules "do not provide adequate information to assist users of financial statements in assessing the likelihood, timing, and amount of future cash flows associated with loss contingencies" (mainly potential losses from lawsuits). Its proposal for more disclosure of information (going beyond Regulation S-K Item 103) is being met with a vehement response from the corporate community. They say that more disclosure would give plaintiff lawyers insight into trial strategies and litigation assessment, providing a road map to sue, reports CFO.com. An audit would be complicated as guidelines for how to audit and treat expanded disclosures would have to be drawn. Unsurprisingly, Sarbanes-Oxley has been pulled into the fray. Opponents say executives at companies with lots of suits pending (a lot of Wall Street firms these days) could not reasonably be asked to sign 302 and 906 certifications. Of course, you could say that about a lot of things.

For more:
- here's the CFO.com article

Can you control for rumors in your firm?

Jim Kim — Wed, 13 Aug 2008 17:55:14 -0400

The time-honored practice of market chatter and gossip may pose as something of a regulatory issue for a lot of Wall Street firms, on the sell-side and the buy-side. The fear is that the SEC intends to hold more companies accountable for rumors designed to tank a stock. Subpoenas have been flying. And we've already seen one enforcement action against an alleged rumor-monger. The SEC is taking a look at policies that firms have in place regarding rumors. One consequence, as TheStreet.com notes, is that more firms are telling their analysts not to be so chatty with journalists. This of course is bad news for any reporter digging for information about companies. The buy-side was often a great source. We'll see if this blows over, but I think we may see more companies issue formal guidelines about information sharing with outsiders.

For more:
- here's the article from TheStreet.com

Messaging compliance on Wall Street at risk?

Jim Kim — Wed, 30 Jul 2008 08:39:54 -0400

A lot of Wall Street firms rely on Reuters Messaging Compliance Manager to accommodate Sarbanes-Oxley and other regulations regarding logging and archiving of electronic communications for financial transactions. But Reuters-Thomson has been locked in an ugly licensing dispute with FaceTime Communications, whose IMAuditor is a key component of the compliance functionality. A federal district court just ruled in favor of FaceTime, ordering Reuters-Thomson to stop using the FaceTime technology on August 1. The problem is that Reuters-Thomson had previously argued that if the product was not available, "customers would be crippled in their day-to-day business operations..." FaceTime thus charged that Reuters-Thomson was putting their customers' compliance programs at risk. Reuters-Thomson, despite its court pleading, seems to be moving ahead with a product switch.

For more:
- here's the ruling

Related Article:
Time to get your Greynet policies in order

Take a multi-pronged approach to data security

Jim Kim — Sun, 20 Jul 2008 08:37:01 -0400

Data security is at the top of a lot of managers' minds these days. Perhaps we can learn from the financial services industry, where the issue is perennially on the front-burner. Aberdeen reports that "best-in-class'' organizations tend toward a multi-pronged approach that spans data discovery and classification, data monitoring and filtering, and endpoint data protection. This allows them to cover the spectrum of possible data leakage points. Most breaches stem from everyday, non-malicious employee mistakes. Article (Wall Street & Technology)

How much has Sarbanes-Oxley hurt start-ups?

Jim Kim — Thu, 03 Jul 2008 09:29:49 -0400

You've likely heard the news by now: In the second quarter, for the first time in 30 years, there were no venture capital-backed companies that went public. Zero! According to the report from the National Venture Capital Association, nearly 60 percent of investors surveyed blamed Sarbanes-Oxley. The burdens the law imposes on newly public companies are certainly real. But Sarbox has long been a convenient scapegoat. There are a host of other issues for VC-backed companies, notably the state of the economy and the state of Wall Street. Right now, the liquidity just isn't there. If you're a start-up, you're likely better off waiting for a more opportune window--or a corporate buyer (not that they're plentiful right now). In general, the VC industry is struggling a bit. Sarbox plays a role, but not the only role.

For more:
- here's an article about the IPO drought from the Washington Post