SEC Commissioner Hester M. Peirce questioned the agency’s current data collection process and analysis.
In a speech before the National Economists Club, Ms. Peirce expressed concern that regulators’ data collection requirements are too far-reaching. According to Ms. Peirce, regulators are increasingly expanding data requirements without adequately considering (i) the underlying costs to regulators, market participants and investors, (ii) the usefulness of the information, and (iii) the potential cybersecurity risks. She:
- questioned whether the information collected by Form PF is useful enough to outweigh the burden of compliance on hedge funds and other private funds; and
- expressed concern that the Consolidated Audit Trail (or “CAT”) – which will collect data from broker-dealers across the county – is costly and a significant cybersecurity liability.
Ms. Peirce urged the SEC to invite academics and market participants to analyze the data collected, raise questions and suggest regulatory solutions. She stated that oftentimes market participants are better at “identifying problems and generating solutions” than the regulators. To encourage independent assistance, Ms. Peirce advised the SEC to make it easier for market participants to access the available data.
Ms. Peirce also addressed recent feedback calling on regulators to foster “sustainable finance,” (a/k/a “building a financial system that fosters a better, more sustainable society”). She stated that such a system should be formed by the free market, and should not be “dictated by a few powerful financial regulators.”
In a world where every website is under potential attack from hostile nation states and from criminal organizations, why would one take the risk of gathering so much financial information in one place? The U.S. government has been successfully hacked; very sophisticated data companies have been successfully hacked; large financial institutions have been successfully hacked. There appears no obvious justification for accumulating so much financial information in a single location, as there can be no assurance that it can be kept safe for all time. Put another way, if the regulators cannot attest that, even if the site is hacked, the benefit of collecting and aggregating the financial information will nonetheless outweigh the harm, then it seems imprudent to proceed.
Form PF, as previously described, is “fundamentally useless.” See, e.g., SEC Requests Comments on Form PF. Anyone with knowledge of the relevant subject areas can look at the questions and see that they will not generate meaningful data; it’s not even necessary to look at the responses to see that the entire data collection effort has been a 99% waste.