NASAA: The Time for Real Regulatory Reform is Now

Crawford: “Now is the time for Congress to do the right thing for investors and restore integrity in the marketplace.”

WASHINGTON (April 13, 2010) – The North American Securities Administrators Association (NASAA) today called on the full Senate to strengthen the package of financial regulatory reforms recently approved by the Senate Banking Committee in order to provide Main Street investors with the protections they need to invest, with confidence, in the markets.

“This is the time for real reform that brings accountability and increased transparency to our financial markets. Investors deserve more from Congress than legislation driven by industry interests,” said NASAA President and Texas Securities Commissioner Denise Voigt Crawford. “Now is the time for Congress to do the right thing for investors and restore integrity in the marketplace.”

Speaking at NASAA’s Public Policy Conference here today, Crawford urged the Senate to shore up provisions in “The Restoring American Financial Stability Act of 2010” that had been weakened in an effort to gain political support for the bill’s approval. “Congress must not waste this opportunity to provide meaningful investor protection reforms,” she said. “Legislation approved by the House and being considered in the Senate offers a foundation for reform, but much more needs to be done to provide investors with much needed protection. This is not the time for study and delay. Investors are expecting meaningful reforms that will make a positive difference in their lives and not just the Wall Street firms.”

Crawford highlighted two areas of the Senate’s massive reform proposal that were directly impacted by unrelenting financial industry and business lobbying. In the first, strong language that would have extended the fiduciary duty standard of care to stockbrokers who provide investment advice was eliminated in favor of a weaker proposal calling for a study of the regulation of broker dealers and investment advisers. In the second example, the Senate Banking Committee dropped a provision that would have restored state regulatory authority over Regulation D, Rule 506 private placement offerings.

“State securities regulators are profoundly disappointed that the latest Senate bill removed the single most important protection for individual investors – requiring that stockbrokers providing investment advice act in their clients’ best interest,” Crawford said. “Instead of offering protections, the reform package offers delay in the form of yet another study designed to derail efforts to secure the protections investors need and deserve.”

Regarding private placement offerings, Crawford said the Senate Banking Committee opted not to close a regulatory loophole that has allowed investors to be exposed to fraudulent private placement offerings since 1996. “In its current form, the Senate bill attempts to remedy the current situation in which there is essentially no federal or state regulation for private placements, but it replaces a non-existent regulatory review process with an unworkable regulatory review process,” Crawford said. “These offerings should be subject to oversight at the state level and is disappointed that the bill did not also include provisions to disqualify securities law violators.”

Crawford also outlined three additional priority issues state securities regulators will press with Congress in the weeks ahead to provide real reform for investors, including:

  • Increasing state regulatory authority over investment advisers by raising the assets under management threshold for state advisers to $100 million from $25 million. “This will shift the workload from the SEC to the states and will allow the SEC to concentrate on the larger firms.” Crawford said.
  • Ending the oppressive system of mandatory arbitration to settle securities disputes. “Neither the House nor Senate bills go far enough,” Crawford said. “They should call for an SEC rule prohibiting these oppressive clauses. The SEC has historically been unwilling to take up the issue of mandatory arbitration and that is not likely to change simply as the result of a discretionary rule-making provision in the bill.”
  • Allowing the proposed Financial Services Oversight Council to benefit from the essential added perspectives of state banking, insurance and securities regulators. “We believe that it is essential to add state regulators as members of the council to formalize regulatory cooperation and communication among all federal and state regulators, resulting in more effective oversight of our intertwined financial markets,” Crawford said. “This holistic approach is effective and efficient. It creates a body with access to all relevant information regarding the accumulation of risk in our financial system, and it draws upon the existing expertise and proficiency of each functional regulator.”

“NASAA will continue to work with members of both the House and Senate to ensure that the lessons of the financial meltdown are not swept aside by powerful industry interests but instead serve to usher in a new era of strong investor protection,” Crawford said.

NASAA is the oldest international organization devoted to investor protection. Its membership consists of the securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada and Mexico.

For more information:
Bob Webster, Director of Communications

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