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Digital Subscriptions > The Hedge Fund Journal > Issue 106 - August 2015 > The Psychology of Regulation

The Psychology of Regulation

Applying nudge theory to compliance

As we steadily approach the 10-year anniversary of the financial crash, there can be no doubt that it has transformed the regulatory culture and environment that firms inhabit. On one level this means most firms now find themselves far more heavily regulated than before. The desire among authorities to ‘fix’ the causes of the crash – as well as improve transparency and minimize risk more generally – has inspired pages and pages of new rules and controls, such as the comprehensive ‘Dodd-Frank’ (Wall Street Reform and Consumer Protection) Act.

But it isn’t just about the volume of new rules. The way and extent to which these rules are enforced is also changing. Alternative funds are coming under unprecedented scrutiny from an increasingly proactive SEC. The numbers illustrate the extent to which the Regulator is on the warpath: in 2013 the Enforcement Division of the SEC opened up 908 investigations (a 12% increase on the year before) and obtained 574 formal orders of investigations (up 20% over the same period). It is estimated that in today’s environment a whopping one in 12 firms will face action at some point. And fines have reached record highs. This isn’t some covert operation; to quote the SEC’s Mary Jo White verbatim, “We are casting our nets wider, and using nets with smaller spaces, paying attention to violations and violators regardless of size… we will be in more places than ever before.”

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About The Hedge Fund Journal

INFORMING THE HEDGE FUND COMMUNITY With access to some of the industry’s biggest names and an astute and talented group of writers and contributors, The Hedge Fund Journal has established itself as a trusted source of information on the hedge fund industry. Highlights of Issue 106: Championing Customization: Amundi Alternative Investments Tackling UK Farming’s Funding Shortfall: Helping reform UK’s agriculture and alternative energy industries Shareholder Activism as Private Equity Allocation: The resurgence of the strategy a decade after first rising CME Group Crude Oil Spread Options Suite: Volumes advance with screen-based trading growing fastest Adding Dynamic Beta to Double Alpha: UBS Equity Opportunity Long Short UCITS