DAVE DEMURO, Managing Director of Global Compliance & Regulation, Lehman Brothers
Dave DeMuro has been at Lehman Brothers for two decades but nothing could have prepared him for the past few years. “The pace of rule-making is approaching the speed of light,” he says. “The pace of change and level of expectation from regulators have put enormous pressure on compliance personnel. The work is harder, both in terms of hours on the job and stress levels, because the stakes have become so high.”
In the past six months, many Wall Street firms have been averaging as many as four regulatory audits initiated per month, with a typical audit taking about two months to complete. And it is a question not just of depth of compliance advice and monitoring, but also of breadth. In the past, compliance tended to focus on high risk areas of the firm, such as sales and trading; these days, regulators have made it clear that “there is not a single aspect of the firm’s activities that compliance should not be looking at”, says Mr DeMuro. In the past two years, his department in the US has grown by two-and-a-half times, as dedicated compliance directors have been brought in to focus on even traditionally safe areas of business, such as private equity.
Even if it means huge additional fixed costs for Wall Street firms, Mr DeMuro argues that it is still worth it. “Senior management recognises that in the environment in which we live, these are fixed costs that are essential because otherwise you risk reputational harm to the firm.” He says the investment is reaping results both inside and outside the firm: customer complaints have decreased by about 40% year-on-year and in a recent company-wide survey, one of the highest scores employees gave the firm was for integrity.
There has also been a marked improvement in the quality of compliance officer, he says. These days hiring talent from top law firms is not a problem. “Compliance is exciting; it’s where the action is,” he says. “I’ve even had people move from front-office jobs to compliance. That never would have happened before.”
But Mr DeMuro raises questions about how much further regulatory scrutiny of the industry can go. “I keep waiting for the high water mark and then find the water keeps rising,” he says. A key problem in the US is a proscriptive rather than principle-based regulatory system, he argues. “There’s a strong preference on the part of regulators to be proscriptive, so there are rules, more rules, rules on top of rules, and amendments to existing rules. I have long questioned whether this regulatory construct is really the best way to go or if one that is more principle-based would yield better results,” he says.
