The author is Deborah Prutzman,CEO, The Regulatory Fundamentals Group, a firm that
provides an enterprise-wide view of the US laws that impact alternative asset
managers and others involved in the field:
In the wake of MF Global, it can be tempting to suggest myriad rules, which, if
followed, would protect investors from similar debacles in the future. Of course,
the key words here are: if followed. As Ananda Radhakrishnan, the CFTC’s Director
of the Division of Clearing and Intermediary Oversight, put it, “If people are
determined to misuse customer funds, they will misuse them.”
No matter how numerous the rules, they can still be broken. And in my experience,
the more complex the rules are, the easier it is to break them without detection.
Complexity itself gives moral weight to the details of the rules, rather than
Instead of creating a maze of regulations, let’s at least start by equipping
investors with the tools to know exactly where their assets are going and what
might happen while assets are in the custody of a particular third party.
Investors need to be crystal clear on the following points:
Contracting Entity – The contracting party should be clearly identified. This
identification affects who can use assets and the purposes for which the assets
may be used. For example, dealing with “affiliates” nudges the door of ambiguity
ajar, and it could swing wide open later. The same goes for allowing the use of
sub-custodians. If sub-custod......................
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