The S.E.C. Should Copy the D.M.V.

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The S.E.C. Should Copy the D.M.V.

The Opinion Pages | Op-Ed Contributor
By JOSEPH S. FICHERANOV. 6, 2014

THE S.E.C. and other federal regulators have levied over $125 billion in penalties on Wall Street since the global financial crisis of 2008. Yet few believe that these fines are enough to change behavior. For the largest financial institutions, a multibillion-dollar penalty can amount to a speeding ticket — another cost of doing business. Repeat offenders are the real problem, and financial penalties alone are no longer an effective deterrent.

Regulators, particularly the Securities and Exchange Commission, could learn from any state’s Department of Motor Vehicles. Like the S.E.C., a D.M.V. is also in the business of regulating behavior through a license. Yet the D.M.V., unlike the S.E.C., has a system that leverages its authority to get better behavior from those it regulates. It’s called “points.”

Points are nonfinancial penalties. If you’re a licensed driver and caught speeding, you pay a penalty and get, say, six points; running a stop sign gets you three. Gather enough points over a certain period and the regulator suspends your license. After the first violation, drivers may not change their behavior much, but as they near the threshold, they tend to drive more carefully.
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The S.E.C. should use its regulatory powers (which provide for public input) to create a transparent, D.M.V.-style point system. If a broker-dealer or an investment bank earned too many violations over, say, a six-year period, its securities license would be suspended.
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Joseph S. Fichera is chief executive of Saber Partners, a financial advisory firm.