Wall Street, after investigations into one-sided research, illegal mutual fund trades and other malfeasance, is complaining about the cost of what it calls "inefficient regulation."
A survey released recently by the Securities Industry Association, which looks after industry interests, found the cost of compliance has nearly doubled in the past three years, to more than $25 billion in 2005, up from $13 billion in 2002.
But the SIA said many of these costs were potentially avoidable with regulators duplicating each other and rules inconsistent or plainly ambiguous - and warned investors may end paying for the extra watchdogs if the costs kept rising.
"This increase is significant and has had a material impact," said the 32-page study, estimating the increase in compliance costs between 2002 and 2005 had wiped almost 5 percent off the industry's annual net revenues.
The regulations multiplied after the two largest bankruptcies in US history - WorldCom Inc and Enron Corp - helped lead to the Sarbanes-Oxley Act of 2002, which tightened corporate financial reporting standards.
The SIA said securities firms reported receiving an average of 231 inquiries per firm over the past year, with nearly 75 percent of those from the US Securities and Exchange Commission and National Association of Securities Dealers.
"The higher costs to industry firms from inefficient regulation may ultimately be borne by retail and institutional investors" if a solution is not found, the study said.
Investors, however, were unconvinced, saying that SIA members obviously wanted to see a reduction in the pace and volume of new rules and regulations.
"These small regulatory costs are nothing compared to the damage that was done by WorldCom and Enron," said Richard Ferlauto, director of pension and benefit policy at the American Federation of State, County and Municipal Employees, a union active in investors' rights.
Three big banks including Citigroup Inc and JP Morgan Chase & Co, for example, have agreed to pay $6.7 billion to settle claims they helped mislead Enron's stock and bond investors.
"Increased costs are being borne because they are filling huge deficiencies in the regulatory approach," Ferlauto said.
But, the SIA maintained inefficiencies in the handling of compliance were driving up costs, with most staff related.
"Each new or revised regulation, legislative initiative or enforcement action added to the cost of compliance borne by securities firms," the study said.
Inefficiencies in the system were also highlighted last week when former SEC Commission Chairman Harvey Pitt said regulators should co-ordinate activities better and criticised prosecutors who grandstand for political or other gain.
"The more resources that can be brought to bear against fraud and wrongdoing, the better off we are, and the better off investors are," Pitt said in an interview. "(But) you can't have 50 state attorneys general running off in separate directions."
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