“How do you manage burdens imposed
by new regulatory initiatives?”
“Make it a signature function
of your law department.”
MFS is a global investment advisor with more than $230 billion in assets under
management. We sponsor a family of U.S. and offshore mutual funds and manage
institutional accounts on behalf of pension plans, foundations, sovereign wealth funds
and others.
Although investment management was not at the epicenter of the financial crisis,
as participants in the markets we are significantly affected by the new regulations
mandated by Dodd-Frank as well as other regulations issued in recent years. While
certain changes were no doubt needed, the broad scope of the regulatory changes
has placed even more pressure on firms like ours. As a result, we have dedicated more
internal resources to follow and participate in the development of new regulations, and
have called upon our trade groups to step up their activity as well.
Consider the response to the pay-to-play scandal, where the resulting regulation requires
MFS and all other investment managers to pre-clear and maintain records on the political
contributions of our employees. Even though the pre-clearance will be governed by the
amounts permitted by the regulation, the end result is that we will know about the political
activities of our employees and candidates for job openings. This is very uncomfortable
terrain, and has led to a substantial diversion of resources within the company to address
how best to manage the different components of this new requirement.
As another example, Dodd-Frank required a study on whether a self-regulatory body
(such as FINRA) should be created to oversee investment advisors. The problem with
this, however, is that we are a trust-based business, meaning we operate on the basis
of fiduciary duties. At a minimum, a self-regulatory body presents the appearance of
a conflict and is inconsistent with the core of our business. I am also concerned that
Mark N. Polebaum
Executive Vice President
and General Counsel
MFS Investment Management
a self-regulatory body typically resorts to a rulebook for regulation and relies less on
principles. A rulebook approach does not work well for institutional clients who prefer
freedom to contract on terms they negotiate, not what the rulebook requires.
The internal challenge of comprehending and complying with the fast-moving
regulatory environment is growing daily. In our industry, meeting this challenge is and
will continue to be a signature function of our law department.
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