Show an ad over header. AMP

How institutions that control vast wealth fall through U.S. regulatory cracks

Financial regulation is not exactly simple anywhere in the world. But one country stands out for the sheer amount of complexity and confusion in its regulatory regime — the U.S.

Why it matters: Important companies fall through the cracks, largely unregulated, while others contend with a vast array of regulatory bodies, none of which are remotely predictable.

Driving the news: Pick a recent headline and it's easy to see how valued — and how obvious — the lack of regulation is in financial markets.

  • Financial data powerhouse S&P Global is buying rival IHS Markit for $44 billion, even as the London Stock exchange looks like it has received EU approval to buy another huge data provider, Refinitiv, for $27 billion. (The giant in the space, Bloomberg, is worth north of $60 billion.) Such companies are integral to the functioning of financial markets, but, antitrust concerns aside, their operations are largely opaque to regulators.
  • S&P Global will also precipitate a massive $100 billion flow out of existing S&P 500 stocks and into Tesla on Dec. 21, when the index giant will finally allow the electric carmaker to join its benchmark index. That's hardly a sign of an efficient market, but regulators have no ability to intervene.
  • The Nasdaq stock exchange announced that it wants to delist companies that don't start nominating a diverse slate of directors — something that roughly 75% of those companies don't want to do, according to what Nasdaq itself says is their revealed preference. That power — to possibly reshape the governance of thousands of companies — is being wielded not by any regulator or legislator, but by a privately-owned company. (Admittedly, the SEC does first need to sign off on the plan.)

How it works: Institutions and individuals that control vast wealth — foundations, endowments, billionaires — are almost entirely unregulated. The asset managers who help to invest that wealth are also largely unregulated.

  • Insurance companies are regulated, but only by a patchwork quilt of state regulators. No federal regulator has oversight or control over the industry.
  • The places that the investments are actually held — the so-called custodians — are regulated, which is one reason why investment managers invariably outsource that part of their business.
  • The exchanges where the investments are traded tend to avoid close regulation, to the detriment of systemic stability. The "shadow banks" that normally keep those exchanges liquid — except during times of stress — are less regulated still.
  • Ratings agencies, proxy advisors, information providers, and other companies providing crucial grease for the wheels of finance — they're largely unregulated too.

What to watch: There's talk that the Biden administration will be much more aggressive about regulating hedge funds than any of its Democratic or Republican predecessors.

  • Biden's presumptive pick as head of the National Economic Council, however, Brian Deese, would be arriving at the White House via the revolving door from BlackRock. The $7 trillion investment giant has relationships with hundreds of regulators around the world, but no one regulator is charged with looking at it as a single global systemically-important entity.

Of note: JPMorgan's fiduciary arm was recently hit with a $250 million fine by the OCC, one of America's bank regulators. Other major fiduciaries include giant nonbanks like Vanguard, Fidelity, and BlackRock, none of which ever have ever faced a fine remotely as large.

The bottom line: The U.S. would benefit greatly from having a single powerful financial regulator operating a principles-based regime that would encompass all financial institutions. Even many of the institutions would welcome such a thing. The problem is that the existing interests are too entrenched for that to ever happen.

Top Chinese diplomat warns Biden against meddling in country's affairs

Chinese Foreign Minister Wang Yi in a speech on Sunday warned the U.S. against getting involved in China's "internal affairs," saying that "both sides need to abide by the principle of non-interference," CNBC reports.

Why it matters: Biden has promised a hardline approach with China. Tensions between the U.S. and China had heightened for years under the Trump administration.

Keep reading... Show less

America is learning to rebalance its news diet post-Trump

Nearly halfway through President Biden's first 100 days, data shows that Americans are learning to wean themselves off of news — and especially politics.

Why it matters: The departure of former President Trump's once-ubiquitous presence in the news cycle has reoriented the country's attention.

Keep reading... Show less

Why migrants are fleeing their homes for the U.S.

Natural disasters in Central America, economic devastation, gang wars, political oppression, and a new administration are all driving the sharp rise in U.S.-Mexico border crossings — a budding crisis for President Biden.

Why it matters: Migration flows are complex and quickly politicized. Biden's policies are likely sending signals that are encouraging the surge — but that's only a small reason it's happening.

Keep reading... Show less

Cities' pandemic struggle to balance homelessness and public safety

Addressing homelessness has taken on new urgency in cities across the country over the past year, as officials grapple with a growing unhoused population and the need to preserve public safety during the coronavirus pandemic.

Why it matters: It’s led to tension when cities move in to clear encampments — often for health and safety reasons — causing some to rethink the role of law enforcement when interacting with people experiencing homelessness.

Keep reading... Show less

Biden to sign voting rights executive order to mark "Bloody Sunday" anniversary

President Biden will sign an executive order today, on the 56th anniversary of "Bloody Sunday," meant to promote voting rights, according to an administration official.

Why it matters: The executive order comes as Democrats face an uphill battle to pass a sweeping election bill meant, in part, to combat a growing number of proposals introduced by Republicans at the state level that would restrict voter access.

Keep reading... Show less

New York Gov. Cuomo faces fresh misconduct allegations from former aides

The office of New York Gov. Andrew Cuomo (D) was on Saturday facing fresh accusations of misconduct against his staff, including further allegations of inappropriate behavior against two more women. His office denies the claims.

Driving the news: The Washington Post reported Cuomo allegedly embraced an aide when he led the U.S. Department of Housing and Urban Development and that two male aides who worked for him in the governor's office accused him of routinely berating them "with explicit language."

Keep reading... Show less

In photos: Minnesota protesters rally for George Floyd ahead of Derek Chauvin's trial

Dozens of protesters were rallying outside the Minnesota governor's mansion in St Paul Saturday, urging justice for George Floyd ahead of former Minneapolis police officer Derek Chauvin's trial over the 46-year-old Black man's death.

The big picture: Chauvin faces charges for second-degree murder and manslaughter over Floyd's death last May, which ignited massive nationwide and global protests against racism and for police reform. His trial is due to start this Monday, with jury selection procedures.

Keep reading... Show less



Get Goodhumans in your inbox

Most Read

More Stories