The Great Recession caused governments and companies alike to reexamine how business is done. The SEC, reacting to calls for greater oversight and regulation, has turned a critical eye on the hedge fund industry. Over sixty new legal professionals have been appointed - some with criminal experience - to investigate hedge fund practices, and the number of regulations that must be complied with is multiplying rapidly.
With the SEC focus now firmly on the hedge fund industry, firms must do more than simply ensure that they comply with all of the policies, procedures and record keeping requirements already on the books. In addition, they must show that they are actively combating systemic risk.
President Obama has personally called for changes to be made to streamline and modernize the regulatory system, with a specific mandate for increased regulation of the hedge fund industry. This has led to the SEC undergoing widespread reorganization; Chairman Mary Schapiro has shaken up top management and revamped enforcement efforts. She recently said, “If anyone is hoping for a respite from reform, I am afraid I will disappoint you.”
The SEC will want to see that you are actively combating systemic risk. The policies, procedures and record keeping requirements you currently have in force will have to be augmented to demonstrate:
- a greater emphasis on policies and procedures
- increased employee training about the firm and its investment strategies
- more testing for the prevention of insider trading
- a hypersensitivity to risk
In particular, it is expected that the SEC will be releasing stringent compliance, e-discovery and regulatory requirements which will require new tools and better solutions.