2009-01-05 How the SEC Can Prevent More Madoffs

2009-01-05 Arthur Levitt Jr Wall Street Journal \Bernie Madoff\financial transparency\US financial regulation http://online.wsj.com/article/SB123111989471152931.html How the SEC Can Prevent More Madoffs How the SEC Can Prevent More Madoffs  There is a lot we still don't know about the Madoff scandal. In my eight years as chairman of the Securities and Exchange Commission (SEC), I never saw an instance where credible information about misconduct was not followed up by the agency. I knew Bernie Madoff and had no reason to believe he was not a legitimate market maker, nor did anyone at that time know he was acting as an adviser to outside investors. ... Yet contrary to what some commentators have said, the Madoff affair doesn't prove that the SEC is a failed institution that must be shuttered. Nor does it show that all it needs is more money to do its job. Rather, this scandal underscores the need for a 21st century regulatory approach. The complexity of today's products, markets and investment strategies calls for a laser-like focus on risk assessment. A regulatory agency is not omniscient. Its leadership must identify the biggest possible risks to investors and to the entire system and focus resources on these areas. Recognizing this, Bill Donaldson, one of my successors in the SEC chairmanship, established the Office of Risk Assessment. This effort started off small. Unfortunately, after Mr. Donaldson left the SEC, it was diminished to only one staff member by last February. Instead of being a sideshow, risk assessment must be central to the SEC's efforts. The agency needs an office that will collect information from all of the agency's divisions and propose inspection and examination priorities. It should identify problems such as excessive leverage and risks posed by new structured financial products. The office should answer directly to the SEC chairman and report monthly to the entire commission. Commentary:
 * /Woozle

&ldquo;...contrary to what some commentators have said, the Madoff affair doesn't prove that the SEC is a failed institution that must be shuttered. Nor does it show that all it needs is more money to do its job. Rather, this scandal underscores the need for a 21st century regulatory approach.&rdquo;   