Wall Street's 'Conflict Reviews': What's the Next Step?
Last fall, securities-regulation top cop Stephen M. Cutler challenged Wall Street firms to confess to the conflicts of interest that plague their business. If they didn't own up, and regulators found it on their own, he warned, "I assure you that the consequences will be worse."
What ensued was a great display of self-flagellation on Wall Street.
Now, the looming question: What next? It is an issue that may run through Wall Street's yearly gathering in Florida this week, the Securities Industry Association annual conference, where brokerage firms are expected to debate whether they should ask to assist regulators in issuing "best-practice" guidelines.
Angling for mercy, investment banks have already hired outside law firms and new regulatory chiefs to write or present confessionals to government officials. Some used meetings with the Securities and Exchange Commission, where Mr. Cutler is the enforcement chief, to rat on rivals. Some firms, including Goldman Sachs Group Inc. and Morgan Stanley, used in-house legal teams to provide regulators particularly exhaustive lists of dozens of conflicts that their various businesses might confront on a given day, people familiar with the reviews say.
The SEC's Stephen Cutler: 'We didn't make anyone any promises.'
The mea culpas were intriguing enough that the New York Stock Exchange and the National Association of Securities Dealers invited firms to do the same, and they have expanded existing programs to spot budding regulatory issues. In September, the United Kingdom's Financial Services Authority sent its own letter asking firms how they search for and identify conflicts, say people who received it.
So what will regulators do with the mountain of information that these "conflict reviews" have unearthed?
Among other things, firms have identified potential risks in their trading practices, where their interests may conflict with customers; in their investment-banking business, where they face pressure to bless as "fair" deals that will enrich clients; and in dealings with hedge funds, where they have an incentive to introduce clients to fund managers who pay them the fattest fees.
Regulators say that the main goal was to promote dialogue about appropriate industry standards, and that they didn't intend this to be a "gotcha" exercise -- at least not primarily so. "We haven't gone into those meetings with the notion that they're going to tell us about this issue or that issue, and then we'll slap them with a bunch of subpoenas or a consent decree before they get out the door," says Mr. Cutler, in an interview. Concurs an NYSE official: "Ultimately, what we're really interested in is changing behavior."
However, Mr. Cutler adds: "We didn't make anyone any promises, and, indeed, if someone were to come in and say I committed the securities-law equivalent of ax murder, I would take enforcement action."
As the months tick by, firms are growing anxious that they have provided ammunition for an assault, or even that their submissions could be sought by securities plaintiffs in private litigation. But some investor advocates fear the opposite scenario: that securities cops will drag their feet in cataloguing the problem areas. SEC insiders acknowledge they don't yet have a timeline to wrap up the continuing conflict meetings. Mr. Cutler says he is considering issuing guidelines or giving speeches on the most problematic issues, as well as investigating further.
Meantime, Wall Street has an opportunity to shape the debate rather than be regulators' punching bag.
"Will Wall Street deal with those issues before the SEC or [New York Attorney General] Eliot Spitzer gets to them?" asks Harvey Pitt, the immediate past chairman of the SEC, who now runs a corporate consulting firm in Washington. "At the moment, the Street is fully empowered to deal with its own issues. But the minute that one of these issues turns into an actual conflict, they suddenly lose control and have enforcement telling them what to do."
Firms are hoping they can avoid a repeat of last year's regulatory scandals, when the 10 market leaders paid $1.4 billion to resolve allegations that they produced biased stock research to aid investment-banking clients. The race to come forward began after Sept. 9 of last year, when Mr. Cutler gave a speech in Charleston, S.C., at a brokerage-industry regulatory conference.
Mr. Cutler called on firms to do "top to bottom" reviews of their business: "Shed the blinders of 'industry practice' that may have made it possible for you not to see the conflicts that surround you daily. Just because the industry has always done something 'that way,' don't assume it's acceptable. It won't be acceptable to your customers when they come to understand the conflicts involved."
The Credit Suisse First Boston unit of Credit Suisse Group went to Washington this past April and met with Mr. Cutler, SEC market regulation head Annette Nazareth and SEC examination and inspections head Lori Richards, along with several deputies, people familiar with the process say. The meeting lasted more than three hours, with regulators asking detailed questions. Deutsche Bank AG had a special sit-down to discuss its prime-brokerage business, which provides trading services to hedge funds, a person knowledgeable about the reviews says.
So far, areas where Wall Street attorneys say they expect some guidance from regulators include hedge funds. Regulators have asked firms whether they invest in hedge funds that they later market to clients. Another big issue is trading. Some firms have discussed with regulators how to better police traders who reveal certain clients' trading activity to other favored clients.
The SIA trade group now is considering preparing a how-to sheet for smaller brokerage firms doing these reviews, say people involved. And this week, it will launch a campaign to remind firms of the importance of clear disclosure to customers and public shareholders about hidden costs and conflicts.
The reviews came as many firms already were strengthening their compliance systems, in the wake of last year's big stock-research settlement. Last February, for instance, after the firm hired the consulting firm McKinsey & Co. to evaluate its compliance systems, Goldman Sachs brought in a prominent white-collar attorney, Alan Cohen, to be global compliance chief.
华尔街公司自查利益冲突
去年秋天，美国证券交易委员会(SEC)的执法部负责人卡特勒(Stephen M. Cutler)要求华尔街券商坦陈业务中是否存在利益冲突，并警告说，如果不主动认错，最后由监管机构查出了不轨行为，这些公司必将承担更严重的后果。
结果，华尔街掀起了一场规模浩大的自我批评运动。
接下来的一个问题是：下一步工作是什么？这可能是本周正在佛罗里达州召开的美国证券业协会(Securities Industry Association)年会上将要讨论的一个问题，预计与会的券商将就是否要协助政府监管机构制定“最佳行为”准则一事展开讨论。
为了获得宽恕，投资银行已增设了首席监管长的职位，并外聘了律师事务所，与监管机构进行了口头或书面的交流。一些公司还利用与SEC会面的机会来揭对手的老底。据知情人士透露，高盛集团(Goldman Sachs Group Inc.)和摩根士丹利(Morgan Stanley)等公司的法律部门向监管机构提供了事无巨细的清单，上面列明了其各项业务可能遇到的几十种利益冲突。
这种自揭其短的做法一时风靡，纽约证交所(New York Stock Exchange)和全国证券交易商协会(National Association of Securities Dealers)也鼓励上市公司主动提供自查自纠报告，并加大了对刚刚露出苗头的监管问题的关注。据知情人士称，今年9月英国金融服务局(Financial Services Authority)也向各券商发出了书面信函，要求它们报告自己是如何查找和发现利益冲突问题的。
那么，随著许多问题在“利益冲突自查”中浮出水面，监管机构将如何应对呢？
在自查中，券商们发现交易业务中可能存在风险，他们的利益可能与客户的利益存在冲突。在投资银行业务中，他们要尽可能地让客户相信，他们介绍的投资品种是合理的，是能让客户赢利的；而在与对冲基金打交道时受利润的诱惑，这些公司可能又希望给客户推荐那些给予销售费最多的基金管理公司。
监管机构表示，主要目的是想推动业内就何为恰当的行业标准展开对话，他们并不打算把它变成一场“官兵捉强盗”的行动，至少这不是主要目的。卡特勒在接受采访时说，SEC与券商会面时并不是抱著要听他们交待各种问题、然后即可作出处罚决定的想法。
不过卡特勒也说，这并不意味著SEC会对谁网开一面，如果谁供认自己严重违反了证券法，SEC也会采取制裁行动。
随著时间的推移，券商们日益担心自己可能已授人以柄，这些供认甚至都可能成为私人证券诉讼中原告方的证据。而一些投资者权益的主张团体则担心相反的情形出现：监管机构可能会在开列利益冲突这个问题上停步不前。SEC内部人士承认，对于将于何时结束这些有关利益冲突的会谈，他们还没有一个时间表。卡特勒说，他在考虑针对最普遍的问题发布指导原则或发表相关谈话，并展开进一步调查。
与此同时，华尔街也有机会引导这一讨论的发展方向，而不是仅仅沦为监管机构攻击的靶子。
SEC的上一任主席皮特(Harvey Pitt)问道：“华尔街会在SEC或（纽约州司法部长）斯皮策(Eliot Spitzer)找到他们之前解决这些问题吗？”皮特目前在华盛顿经营一家企业咨询公司。他说，目前华尔街完全可以自行处理，但如果这些问题真的导致利益冲突时，就只得听从执法部门告诉他们该怎么做。
华尔街的券商们希望能避免重蹈去年的监管丑闻覆辙。去年在被指控出具倾向性股票研究报告以取悦投资银行客户之后，10家大券商花了14亿美元才平息了事端。卡特勒于去年9月9日在南卡罗来纳州的一个券商业监管会议上发表前文提到的讲话后，券商们更是开始了自揭其短。
卡特勒呼吁券商们对业务展开“从上而下”的自查：摆脱所谓“行业惯例”的蒙蔽，这些“行业惯例”可能让很多人对日常的利益冲突熟视无睹。不要因为业内通常都这样做，就假定这是可接受的。一旦客户意识到存在利益冲突，他们是不会接受的。
据知情人士透露，瑞士信贷集团(Credit Suisse Group)的子公司瑞士信贷第一波士顿(The Credit Suisse First Boston)今年4月前往华盛顿会晤了多位SEC高官，包括卡特勒、市场监管部主管拿萨勒(Annette Nazareth)、调查部主管理查兹(Lori Richards)等。在3个多小时的会面中，监管机构问了很多详细的问题。另据消息人士称，德意志银行(Deutsche Bank AG)也举行了一次特别会议，就其大宗经纪业务展开讨论。大宗经纪业务主要是为对冲基金提供交易服务。
到目前为止，华尔街律师们预计监管当局将发布指导规范的领域将包括对冲基金。监管机构已询问过券商，他们是否曾在投资了某些对冲基金后，又向客户销售这些基金。另一个大问题在于交易。某些公司已就如何更好的约束交易员、防止他们将某些客户的交易行为透露给其他客户的问题与监管当局进行了探讨。
据知情人士透露，美国证券业协会正在考虑为中小券商编制一份自查指南。本周该协会还将在券商中发起一项推广活动，大力宣扬向客户和公众股东清楚披露隐蔽成本和利益冲突的重要性。
在进行这些自查的同时，许多公司也已从去年的股票研究丑闻中吸取教训，不断地强化其法律执行系统。例如，高盛在聘请咨询公司麦肯锡(McKinsey & Co., Inc.)对其法律执行系统进行评估后，又于2月份聘任著名律师科恩(Alan Cohen)担任其全球法律执行主管。
