SEC Expands Its Cooperation With Global Regulators: Hedge Funds and Investment Advisors Take Note

This post was written by Pablo Quinones, Sarah Wolff and Joseph Prater.

On March 23, 2012, the United States Securities and Exchange Commission (“SEC”) announced that it had entered into cooperation arrangements with the Cayman Islands Monetary Authority (“CIMA”) and the European Securities and Markets Authority (“ESMA”) in its continuing effort to improve global regulation of transnational business entities. The cooperation between the SEC and CIMA is particularly significant because a large number of hedge funds, investment advisers, and investment managers operate in the Cayman Islands and frequently access capital and investors in the United States. ESMA is an independent European Union Authority that regulates credit rating agencies and coordinates with other EU securities regulators. The SEC’s press release announcing the new arrangements is available here.

The new cooperation arrangements between these regulators will allow them to share information about hedge funds, investment advisers, investment fund managers, broker-dealers, and credit rating agencies. The arrangements establish “supervisory cooperation agreements” with the SEC’s foreign counterparts aimed at “establish[ing] mechanisms for continuous and ongoing consultation, cooperation and the exchange of supervisory information related to the oversight of globally active firms and markets.” According to the SEC’s Director of International Affairs, these types of arrangements are intended to build relationships that may help prevent fraud in the long term or lessen the chances of a future financial crisis. Currently, the SEC has cooperative arrangements of various types with approximately 80 jurisdictions around the world.

International securities fraud cases require cooperation among foreign regulators. While regulators are willing to informally share some information, the existence of a formal cooperation arrangement facilitates a full exchange of information. The growing cooperation between the SEC and foreign regulators will no doubt lead to an increasing number of securities enforcement actions as more eyes focus on a single business entity. Hedge funds have been subjected to increased regulatory scrutiny in recent years. The SEC's latest expression of interest in the Cayman Islands underscores that hedge funds continue to be high on the SEC’s agenda.

 

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