Compliance Takes Center Stage

Compliance technology was the hot topic as Securities and Exchange Commission CIO Corey Booth spoke yesterday afternoon at the annual SIA Technology Conference in New York. Booth discussed how the changing regulatory climate initiated an ongoing technology overhaul at the SEC. "In many ways, 2004 was about laying a foundation with regards to reorganization and starting to really think through what our strategy ought to be," Booth said in a previous interview with Wall Street & Technology.

The SEC's technology budget for 2005 -- $113 million -- is two-and-a-half times its 2002 budget. According to Booth, the money will be spent on upgrading technology infrastructure, developing new applications, improving data management and expanding analytical capabilities.

The SEC's increased IT investments also are expected to have a significant effect on overall institutional compliance spending. A report by Needham, Mass.-based research firm TowerGroup estimates that for each additional budget dollar spent by the SEC on internal efforts, the industry would spend $5 to ensure better compliance.

In his keynote address yesterday, however, Booth disputed that correlation. He said, "Many of the things that we've focused on have not been about creating new regulations as a result of technology. We've been streamlining our processes and making ourselves more efficient. I like to think that it will decrease the industries efforts, not increase them."

A change in leadership at the SEC has cast some doubts as to whether or not regulators will continue to be as aggressive as in previous years. Earlier this month, William Donaldson announced his plans to step down as SEC chairman on June 30. Donaldson, who was appointed chairman in 2003, was a staunch advocate of the registration of hedge fund advisers and heavy fines for corporate wrongdoers. A former head of the NYSE, he more recently came under scrutiny for overseeing a controversial plan to renovate stock trading despite objections from fellow Republican representatives.

Soon after Donaldson's resignation, President Bush nominated Republican California Congressman Christopher Cox as the new chairman. Although Cox supported the Sarbanes-Oxley Act of 2002, he reportedly also voted on legislation to make it easier for companies to defend against securities fraud lawsuits. Consequently, his appointment has sparked much speculation as to whether the Commission could become more lenient under his guidance.

"I don't think [the change in leadership] is necessarily going to change things a whole lot," says Holly Miller, region manager at Boston, Mass.-based Citisoft, a global investment management consultancy and subsidiary of Satyam Financial Services Group. "A lot of the compliance activity that we're doing right now is thanks to Eliot Spitzer. Even if Cox has an antiregulatory stance, it is the fear of exposure that's driving both regulators and managers. The last thing a manager can afford is a public compliance black mark."

Despite the uncertainty surrounding the prospective chairman, compliance vendors at the SIA Conference remain confident that financial services firms will continue to increase their investments in technology related to regulatory initiatives. "Compliance is like a pot of water that's been heating up on the stove," says Sean Lanagan, director of product management at Hopkinton, Mass.-based information storage provider EMC (booth 4501). "It just keeps getting hotter."

Citisoft's Miller adds that searching for new compliance products is a main focus for her at this year's conference. "One of the areas I'm concentrating on at the show is compliance, and that covers everything from e-mail-type systems to ... pre-trade compliance activities," she says. "I go to SIA to look at new products and what's out there because it's one of the most efficient ways to do that."