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The Bernie Madoff was established in 1960 and its success was attributed to loopholes in the regulatory. Financial laws were not highly developed as they are today thus making it difficult to notice the Bernie Madoff scam. Detecting of Bernie Madoff actions was very shocking and as a result regulatory laws were improved to ensure there were no such schemes again in the future.
The following are the changes which should be made;
The main responsibility for SEC is to monitor and investigate financial institutions. Implementation of the new bill allowed SEC to create rules which may regulate investment of brokers; financial advisors and dealers are of great help. For the case of Madoff, SEC had no authority of taking legal action against them. Transparency and improved coordination amongst SEC officials has improved its service delivery.
SEC should ensure that all the business before they start their operations they have undergone all the necessary procedures and they will abide by their terms. Registration of more firms will lead to fair competition in the industry hence promotion of the practice of ethical values.
SEC should ensure that all the registered firms file a quarterly report that highlights their compliance efforts and the manners in which they are managing the customer’s assets. Filing of the reports will avoid fraudulent activities due to accountability. For the case of Madoff, they were able to avoid regulators for many years because there were no records which could show if the funds they held were for many depositories.
SEC has adopted a new rule which entails the registered investment adviser to put the investors’ assets under custody of a different independent organization. The rule ensures that there no Ponzi schemes which can extort money from investors.
In 2010, SEC introduced a new enforcement division with a specialized unit. The role of the division is to enhance policies associated with public pension, asset management, market abuse and foreign corrupt practices.
Madoff`s fraudulent activities were discovered because his sons reported him. If the sons could not have reported more innocent investors could have suffered in his hands.
Though SEC is able to receive tips and complaints from analysts and members of the public, its structure did not authorize them to respond immediately until in 2011 when they created Office of Market Intelligence (OMI). The role of OMI is to do a follow up on tips and complaints.
Following the Madoff`s fraud incident, SEC updated its measures and guidelines by implementing an IT system that is able to track and analyze the complaints and tips. The organization has also put into place a data analytics system that is able to detect fraud.
An offering of high reward to financial whistleblowers
Implementation of the new bill allowed SEC to reward cash bounties to people who offered useful information related to their cases. The reward acts as a motivation to both stakeholders and employees to revealing the faults in financial institutions. Investment firms are more transparent nowadays than before. The public and investors are able to obtain all the necessary information related to the firms they would like to invest in.
Additionally, to the law, investors have become more inquiring about the investment firms they should join. Investors have become so transparent.
Development of technology has come with many benefits and customers are able to monitor all the activities taking place in their accounts online. Unlike before, customers were only able to get their accounts information through emails. The government has ensured that the rights of the customer are fully protected.
In Madoff`s case, arbitration was taking place outside of court and that is the reason why his arrest took so long. These days’ people have the right to present their cases in court if they are scammed. Madoff customers had started complaining about his investment even 10 years before his arrest. In case a customer suspects a foul play in a firm they have invested in, they are is able to request for court arbitration.
The Wall Street Reform and Consumer Protection Act were endorsed in response to the financial crisis which was caused by numerous years of zero accountability and neglectful enforcement of regulations for financial institutions. It is also known as Dodd-Frank and was passed in 2010 to protect consumers from deceptive and unfair products and practices. The main goal of the act is ensuring there is transparency in the markets, offer financial regulators with tools which can detect as well as prosecuting fraud and providing shareholders with saying above governance of corporations.
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