Morgan Stanley’s response to the regulatory overload was a bit different from other Wall Street firms. The bank appointed a special head of regulatory matters to help co-ordinate the regulatory effort. Eric Dinallo, a former deputy of Mr Spitzer, was the man chosen for the job.
“The company thought that they needed someone to help navigate the regulatory landscape,” says Mr Dinallo. Part of his role is to look at regulatory issues that the firm faces across the board, with the 100 or so regulators the firm’s various businesses deal with globally. He emphasises that his appointment was part of a broader effort by Morgan Stanley to work on its “regulatory relations and regulatory image” – which included the appointment of Sir Howard Davies, the former head of the UK’s Financial Services Authority.
The goal is to have more of a physician-patient type relationship with regulators – with scope for discussion, as in the UK – rather than the current adversarial approach, says Mr Dinallo. He cites Morgan Stanley’s $19m settlement with the New York Stock Exchange last September (when nine issues were settled in one fell swoop rather than one-by-one) as an example of a more holistic regulatory approach.
It is not just a question of talking to regulators (although he says he is on the phone to them a lot) but also about attending internal meetings at the firm to give his input. “It’s not just about not breaking a particular rule but about how does it feel? With total industry transparency, how does it look? Often, my job is to see things from a regulator’s perspective and translate that a bit,” says Mr Dinallo.
He says that the main problem with the current rule-based system is that what is not specifically prohibited is implicitly allowed. But he reckons that change is in the air. “I think we are living through a substantial evolution of the regulatory model akin to what we had in the 1930s,” he says. “Looking back 20 years from now, I think we will have seen a tremendous paring down of the rules and regulations to a more simplified, British-style system. It’s an almost epoch-like shift from a rules-based to a principle-based regulatory regime.”
