Wouldn’t it be great if you could get help with your most irksome compliance or regulatory chore from say, Arthur Levitt, who was the longest serving chairman of the SEC, or Frank Zarb, who served as chairman and CEO of NASD and the Nasdaq Stock Market? Well, your wish has been granted. Last month, both Levitt and Zarb joined Promontory Financial Group (www.promontory.com), a Washington, D.C.-based regulatory compliance and crisis management consulting firm that was launched in 2001 by former U.S. Comptroller of the Currency Eugene Ludwig. Levitt and Zarb came aboard to head up Promontory’s securities practice along with Kathleen Hamm, a managing director at Promontory who spent 10 years in the SEC’s enforcement division. “It’s not often that you get the potential for the coming together of the dream team,” enthused Ludwig in a recent telephone interview. “I can’t imagine a securities area where you could get people that are more knowledgeable than Arthur Levitt and Frank Zarb.” I chatted recently with all four of these heavy hitters–Ludwig, Levitt, Zarb, and Hamm–about their plans to formulate the securities practice, the current regulatory and compliance environment, and what advisors can expect from regulators going forward.
IA: Mr. Ludwig, what prompted you to add the expertise of Mr. Levitt and Mr. Zarb to help formulate the securities practice now?
Ludwig: Securities companies and every company are more than ever pressed to conform to new securities rules, higher standards in terms of controls, and who knows it better than Arthur and Frank? We’re lucky to have the dream team at a time in which we believe we can help a great deal, and the approach we take–which is the high integrity, highly sophisticated group of people doing top-notch work–will resonate with the industry.
IA: What will Promontory’s priorities be as you build out the securities practice?
Hamm: First and foremost, we have the expertise to do internal fact-finding investigations that are important for clients that are under regulatory review or scrutiny. In addition, the second part of building out the practice, in the area that we believe has a tremendous opportunity for growth, is compliance and regulatory reviews for regulated entities and public companies. We have the team, including lawyers, that have securities expertise, business experts, and people like Arthur and Frank who’ve run large Wall Street firms to oversee these types of compliance and regulatory reviews. I think they are important areas for regulated entities, including newly registered [hedge fund] advisors.
Levitt: Frank and I both have the experience of being in the trenches and running a brokerage firm, and then the regulatory experience of running two stock exchanges. It’s our expectation and hope that financial services firms that are facing a dramatically changed regulatory environment–that’s dynamic, not static–would require the objectivity we could bring to an advisory and consulting relationship.
IA: Has the SEC and NASD gone too far in their regulatory scrutiny?
Levitt: Every commission has different priorities than its predecessor commission. It’s not a question of whether one commission is more aggressive than another, it’s that their emphasis may be different. One commission may emphasize investment management and the other might be market structure.
IA: Surely whether the SEC and NASD ease up on issuing regulations plays into how you formulate the securities practice.
Levitt: Because of my tenure at the SEC, I lived through a whole host of issues, and because of Frank’s tenure in the brokerage industry, at the NASD, and in Washington, he’s lived through the waxing and waning of regulatory attitudes. I think we’re able to respond better than most to the significant changes that will be taking place from a regulatory point of view.
Zarb: The environment is one–and this has been going on for a year or two–where the democratized marketplace is moving toward a higher standard of operation, which is complicated by new products and methods of moving those products. The industry needs to anticipate and prepare for those standards, rather than wait for a problem to occur. A key role of Promontory going forward is helping the industry look at these things as they unfold.
IA: Characterize the help Promontory is giving to hedge fund advisors.
Ludwig: In some cases we have been helping them rebuild and enhance their control infrastructure–compliance and risk management to internal audits and governance approaches. We have also done investigations in the securities area that, where the supervisor has asked the entity to have a separate investigation, we’ve done that investigation.