Compliance

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Capital Markets Outlook 2013: Financial Transparency Gets Real

For Form PF, a Dodd-Frank requirement, firms must gather data from multiple sources, structure it, slice it according to how they believe the Securities and Exchange Commission will want to see the data, and file highly burdensome reports on deadline.

Editor's Note: We will release two new pieces of this feature every day over the next week.

FINANCIAL TRANSPARENCY

Why It's Important: Financial transparency is a cornerstone of Dodd-Frank. In the aftermath of the 2008 financial crisis, shareholders and investors have been pressing Wall Street firms to provide more transparency in areas ranging from reporting to fees and executive compensation.

Where the Industry Is Now: Form PF's main purpose is to collect information for the Financial Stability Oversight Council so that it can examine whether certain investment advisers possess inherent financial systematic risk. Hedge firms and private equity firms must disclose much more information than previously required. Firms have complained about Form PF being a huge burden that's of little regulatory value. "It's particularly heinous for large hedge funds, which have to file around 50 additional pages of documents compared to other firms," says Lyn Marcrum, senior analyst at Aite Group. "Form PF is a headache for everyone, but for larger hedge funds it's a migraine."

Funds with more than $5 billion in assets under management had to file their initial Form PF with the SEC by the end of August. Deadlines for smaller firms are fast approaching, in 2013.

Vendors have popped up out of nowhere with slick Form PF products that purport to help banks with their biggest compliance challenges. The problem for financial firms is in aggregating the required data, such as which customers are out on loan or what's being used as collateral. There is another steep challenge, financial professionals concur: The SEC hasn't defined final requirements, so banks don't understand what the securities industry watchdog actually wants.

Meanwhile, shareholders have been paying close attention to executive compensation, prompting a revolution this year that came to be known as the "shareholder spring." In particular, shareholders are demanding that Wall Street executives' hefty bonuses be more commensurate with banks' results. Citigroup shareholders, for example, rejected a board-approved compensation package that boosted chief executive Vikram S. Pandit's pay to $14.9 million from $1 (an amount he agreed to accept until the firm returned to profitability) the previous year. Some 55% of votes went against the package.

Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio

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