Former SEC chair Mary Schapiro’s mysterious new gig

April 2, 2013, 10:51 PM UTC
Former SEC head Mary Schapiro

FORTUNE — On Tuesday, the bank consulting firm Promontory Financial Group announced that it had hired Mary Schapiro, who stepped down as the head of the head of SEC four months ago.

Schapiro is a particularly high-profile hire for the firm, but she’s among many there who are former Washington officials. In fact, Promontory already had a former SEC chair on its roster — Arthur Levitt is on the firm’s advisory board.

Also associated with the firm are Laura Unger from the SEC; Alan Blinder, who was a vice chairman at the Federal Reserve; Frank Zarb, who headed the Nasdaq Stock Exchange in the 1990s; and Paul Tagliabue, the former commissioner of the NFL. In all, the firm has about 400 employees, about a quarter of which are former regulators.

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Because of its high-profile fire power, sources say Promontory commands higher fees than the average bank consultancy, though it’s not clear how much. The firm doesn’t release any financial information.

Promontory came under criticism late last year for leading a review of foreclosure practices at a number of the big banks. The reviews were supposed to be independent. But reports revealed that Promontory and others allowed the banks to control the process more than they should have. Ultimately, regulators determined the reviews were flawed and shut them down earlier than expected, but not before Promontory and other consultants collected $2 billion in fees.

At Promontory, Schapiro will head the firm’s governance and markets practice. Promontory says Schapiro will “work with clients to ensure that the quality of corporate governance is commensurate with the demands of running modern public companies.” She will also advise firms on risk management. But what that means is, of course, not really clear. Schapiro has never been a bank risk manager, in the traditional sense. She’s never run risk models to figure out how much money a lending program or trading division could lose. She’s never worked for a bank.

And the rules on what Schapiro can or can’t do aren’t all that clear. Former government officials are not allowed to appear in front of the agency they used to work for and lobby on a client’s behalf. Schapiro says she will go a step further and not lobby any government body. And the rules prohibit for two years Schapiro from contacting SEC officials on any “particular matter involving specific parties” that she was involved with when she was at the SEC. But there doesn’t appear to be any rule against Schapiro unofficially discussing a new issue or a bank in general with people who formerly worked for her at the SEC. And Schapiro can certainly give advice to clients on how she would deal with an issue with a regulator or a regulation. Promontory hired her and touted it in a press release, so clearly she will do something that the firm believes it will get paid for.

There’s been increasing concern about back-and-forth movements of individuals between Washington and Wall Street recently. Schapiro’s replacement, Mary Jo White, comes from a top corporate law firm where she represented Wall Street banks. Before that she was a U.S. District Attorney in New York. Jack Lew, who recently took over at Treasury, briefly worked at Citigroup (C). And Promontory’s hires like Schapiro seem like another example of this.

Adding to the problem is the fact that it’s not exactly clear what Promontory does. Generally, it is one of the many firms that are helping banks navigate new Dodd-Frank regulations, though the firm has been around a lot longer than the law. It took a lobbying assignment for General Motors (GM) back in 2009, but it’s not officially listed as a lobbyist for any financial firm.

On the firm’s website, it says it helps firms “grapple with and resolve critical issues,” particularly ones that involve regulators. Among its expertise, the firm says it helps banks comply with anti-money laundering and consumer compliance rules. It also advises banks on the Fed’s annual stress tests.

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“Promontory does a lot of things, not all of which they talk about,” says Dennis Kelleher, who runs Better Markets, a group that has been critical of Wall Street and its dealings in Washington. “What the firm actually does is use insider knowledge gained by former regulators and their contacts to help keep or get banks out of trouble, and avoid punishment and accountability for their conduct.”

Schapiro says her hire is not an example of the revolving door, because she has no plans to go back to government. But it seems revolving door-ish. At the very least, Schapiro’s hire highlights the screen door between banks and regulators.

That’s not all bad. In the post-Dodd-Frank world, there are a lot of regulations that need to get worked out. And it’s helpful for banks and regulators to understand one another. One of the problems with the JPMorgan (JPM) London Whale trading problems was that regulators didn’t seem to know what was going on.

But the problem occurs when Wall Street firms control when those screen doors remain open or get boarded up. That does appear to have been part of the problem at JPMorgan. And as long as Wall Street is doing the hiring of consultants and getting the best of the litter, the problem will continue.