Compliance Bricks and Mortar for March 24

These are some of the compliance-related stories that recently caught my attention.


Women in banking To err is human, to get fired for it … female by Tanaya Macheel in American Banker

One of the latest studies of gender differences in financial services finds female advisers accused of wrongdoing are 20% more likely to lose their jobs than male advisers accused of wrongdoing. The women also are 30% less likely to be rehired than the men within a year following the incident, even though the women are less likely than the men to commit another offense, according to the study’s findings. The infractions cover a wide range, including misrepresenting or omitting key facts and committing fraud. But even controlling for factors like the severity of the offense — as well as qualifications and experience level — women fared worse than men. The study identified Wells Fargo Advisors as the biggest offender, saying its female advisers were 25% more likely to experience a “job separation” after misconduct than their male counterparts. That figure is about 20% for Morgan Stanley’s female advisers and close to 15% for those from Bank of America Investment Services and JPMorgan Securities. The report is titled “When Harry Fired Sally.” You can access it here. [More…]


Trump’s SEC Pick Set for Tense Reunion With Elizabeth Warren by Benjamin Bain and Elizabeth Dexheimer in Bloomberg

Two decades ago, Warren was a little-known law professor at the University of Pennsylvania. Clayton was a Penn law student at the same time. She went on to become the finance industry’s most relentless critic, while he made millions as a lawyer representing big banks and hedge funds. Their paths will cross again Thursday at Clayton’s Senate confirmation hearing, where Warren will be among the most outspoken lawmakers questioning his work on behalf of the industry. [More…]


Anthem’s Blow Against Corporate Trust by Matt Kelly in Radical Compliance

This isn’t an abstract problem. Distrust in institutions is growing, with real consequences for corporations and compliance officers charged with keeping them on a trustworthy path.

I explored this in a recent post on the NAVEX Global blog. We have the Edelman Trust Report, an annual survey of public trust in various institutions: it shows trust declining for all types of institutions, including businesses and governments, around the world. We also have the PwC CEO Survey of 2017: it cites organizational trust as an emerging risk for businesses, and noted that companies able to foster trust will have a competitive advantage in the future. [More…]


Why the Securities and Exchange Commission’s Administrative Law Judges are Unconstitutional by Linda D. Jellum in NYU’s Compliance & Enforcement

I answer these and other questions are in my recent article,[27] explaining why the SEC ALJs’ appointment violates the United States Constitution and why there is no easy fix. Further, I note that it is not just the SEC ALJs’s appointment process that is constitutionally infirm. In addition, the SEC ALJs, indeed all ALJs, are subject to multiple for-cause removal protections. In 2010 in Free Enterprise Fund v. Public Company Accounting Oversight Board, the Supreme Court held that dual for-cause removal provisions violate separation of powers.[28] Possibly, the Supreme Court will refuse to extend its holding in Free Enterprise to ALJs given the potential impact on the administrative state. However, if the Court meant what it said and if the case is to have any relevance beyond the agency involved, then the multiple for-cause removal provisions affecting the SEC ALJs specifically and all ALJs generally will need to be fixed. The constitutional challenges raised in these cases are far from inconsequential. Thousands of ALJs may be subject to unconstitutional appointment and removal provisions. Thus, the shadow of Free Enterprise looms large. [More…]


12b-1 Fees: It Is Time To Bid Them Farewell? in Kitces.com

From its start in 1980, the 12b-1 fee was controversial – a distribution charge assessed against current mutual fund investors, that the fund company can use to market the fund to new investors. In other words, the mutual fund got to use investor dollars (rather than its own money) to grow the fund’s assets under management (AUM).

In theory, this use of the mutual fund investor’s own money to market the fund company’s products was supposed to be good for the investor, because it would help grow and scale the fund and bring down its operating expense ratio. However, several decades later, subsequent analysis is finding that while mutual funds that charge 12b-1 fees are successful at incentivizing salespeople to bring in more assets under management, the 12b-1 fee isn’t living up to its promise of helping to scale up and bringing down the expense ratio as the mutual fund grows. [More…]


Cyclists Break the Law to Stay Safe, Study Finds by Joe Lindsey in Bicycling

The study (“Scofflaw Bicycling: Illegal But Rational”), just published in the Journal of Transport and Land Use, details when, how, and why cyclists decide to break traffic laws. The authors, an engineer and sociologist from the University of Colorado and an urban planning professor at the University of Nebraska-Lincoln, set out to study the subject of cyclist misbehavior, which they say has surprisingly scant research.  [More…]