Robert Schmidt and Benjamin Bainx, 10 April 2021
The U.S. Securities and Exchange Commission was supposed to be able to spot a whale like Bill Hwang by now. As the financial world knows, it didn’t. Will the agency be able to catch the next one?
The collapse of Hwang’s Archegos Capital Management represents one of the most spectacular failures of risk-management and oversight in recent memory. For the SEC, it caps a decade of foot-dragging on protections that were meant to avert, or at least minimize, just such a blowup.
Archegos highlights a pair of regulatory blind spots that Washington has long neglected: The firm’s heavy use of swaps to place undisclosed bets and its status as a private family office. With the pending arrival of new SEC chief Gary Gensler, the debacle adds to the already formidable challenges the agency faces.
The SEC’s issues with swaps date back to the aftermath of the 2008 crisis when Congress passed the Dodd-Frank Act. The law directed it to set up databases that would track complex derivatives transactions in real time — meaning the regulator could have had details on Hwang’s huge bets at its fingertips. Eleven years later, the agency hasn’t completed the task.