SEC’s Hu Says Regulators Will Always Trail Market Innovators

The U.S. Securities and Exchange Commission official in charge of spotting risk to financial markets said the agency will never be able to match the pace of industry innovation even as it expands its understanding of complex financial instruments.

“There’s no question that the people in industry will always be far ahead of regulators,” Henry Hu, the outgoing head of the SEC’s Division of Risk, Strategy and Financial Innovation, said today at the Hedge Funds New York conference sponsored by Bloomberg Link. “We don’t want to be so far behind that we can’t see them on the horizon.”

Hu, who joined the SEC in 2009 to lead the newly created unit, said he focused on bringing in staff with different legal and investment backgrounds to improve the agency’s understanding of “how exactly derivatives work, what should be done in terms of their regulation,” he said at the conference.

The University of Texas professor, who is leaving the agency to return to academia, likened the SEC’s rulemaking workload imposed by the Dodd-Frank financial-regulation law to the ceaseless conveyer belt of chocolates faced by characters in an episode of the 1950s television series “I Love Lucy.”

“Some of us at the SEC sympathize with Lucy and Ethel,” he said. “The SEC is in Washington, not Hollywood, but I am firmly convinced that with the help of market participants, investors, hedge funds, financial institutions and so forth, that working together, we’ll be in a happy ending.”

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