Director, Alabama Securities Commission
President, North American Securities Administrators Association
October 12, 2001
SIA Small Firms Conference
Ft. Lauderdale, Florida
Thank you. I appreciate the opportunity to be here today. I want to thank you, Roy, for the invitation. I want to thank Rob Gannon and Keith Utsey, the Securities Industry Association’s hard-working state contacts. I want to thank Bill Alsovar and Sandy Masek for their fine presentation to the North American Securities Administrators Association’s (NASAA) membership last month in San Francisco. And I don’t want to forget Jim Titak for his advocacy on behalf of small firms.
As a fellow small businessman – I’m involved in another regulated industry, trucking, and I own part of a small plastics company – I know you are facing difficult times. I too am keenly aware of many of the issues you’re facing, such as the cost of technology, the cost of recruiting and retaining good people and the cost of regulation. I know that times are hard on Wall Street and elsewhere.
Since Sept. 11 everything has taken on a different perspective. As NASAA’s president, I have been urging and will continue to urge my fellow regulators to make all reasonable allowances for firms that have been affected by or are recovering from the terrorist attacks and the fallout from those attacks. In Alabama, for example, we are processing requests from small firms for duplicate files on an “immediate need” basis. Other states are taking similar steps. I have been and will continue to be in close contact with NASAA’s counterparts at the Securities and Exchange Commission, the National Association of Securities Dealers Regulation and the exchanges. And I will continue to be an advocate for flexibility and sensitivity during this difficult time.
At the same time, we will continue to do all we can to protect Main Street investors from con artists and others who would seek to take advantage of this uncertain and fearful time. We all want to keep the trust of investors. Two weeks ago, for example, NASAA issued a warning about opportunistic scams in the wake of the terrorist attacks. The warning was picked up by a number of news services. It is also posted on our website.
While our markets are well off their highs and remain volatile, we must remember the fundamentals that our economy remains the most diverse and productive in the world. For our part, we’re encouraging investors to be calm and take the long view. As I understand John Elway told you yesterday morning, you folks are
key to helping investors renew their confidence in our economy and our markets. Focusing on details and execution and a positive attitude will go along way to renewing that confidence.
I have been asked to concentrate today on giving you an update on NASAA’s uniformity project and some perspectives of where we will head into the new year. I am going to draw liberally from the speech I planned to give Sept. 11 at NASAA’s annual conference in San Francisco. Actually, this is a very appropriate venue to deliver these remarks because, after all, you are the backbone of Wall Street. I am going to focus briefly on what I intend to accomplish during my year as NASAA president and also ask for your help.
First of all let me say that I’m not here today to propose any grand plan or any radical new vision. I think NASAA and the states are on the right track. Our cooperation with the industry has never been greater, and we are continuing to listen to each other. It is my intention to build on the progress we’ve made, the successes we’ve had and to help NASAA make the right investments and the right adjustments to continue to move forward.
One year ago in Montreal, under Brad Skolnik’s leadership, NASAA adopted a vision statement that I think pointed us in the right direction: stressing uniformity and efficiency while reinforcing our unique role as local cops on the securities beat, policing the marketplace, fighting fraud and educating investors. I see no reason to reinvent the wheel.
For her part, Deb Bortner, NASAA’s president last year, helped to make that vision more of a reality by tirelessly working to streamline the broker/dealer registration process. Let me state that we will continue that process and we will do even more. That’s why I have asked Deb not only to head up the uniformity project as it continues, but also to consider uniform guidelines in the sanction arena. I’ve also asked her to work to complete a uniform come clean letter, which I know is one of your concerns.
I know the uniformity and streamlining of forms and efficiency in registration are big issues with the SIA, especially the small firms. If I can, let me show where we are with regard to our Uniformity project.
Shifting gears, another of my priorities going into the new year is the efficient and effective regulation of the growing investment adviser population. As you all know, investors today want advice and help. While the vast majority of investment advisers are honest professionals, just as the vast majority of registered representatives are honest professionals, the potential for fraud should concern us all.
State regulators are the only regulators when it comes to the smaller advisers and their representatives. NASAA will be sending a message that we’re serious about overseeing investment advisers and their reps. That means we need to develop or step up our examination programs. I’ve called for an electronic exam module to be developed for investment advisers, similar to the one NASAA rolled out for broker/dealers not too long ago. This is another effort at uniformity. Obviously there will be opportunities for both investor education and enforcement in the investment adviser arena as well.
The Investment Adviser Registration Depository, the IARD, is our newest licensing, registration and enforcement system. It is to investment advisers what the Central Registration Depository is to broker-dealers. Despite the inevitable glitches and delays you have with any new and complicated system, we will move ahead with IARD. In a few years, the IARD will be just as important to the investment adviser community as the CRD system is to the broker/dealer community.
Looking forward, the states have a lot of other issues to deal with: The continued implementation of the Gramm-Leach-Bliley Act, including how to regulate the securities activities of banks and the privacy regulations stemming from Gramm-Leach-Bliley, not to mention the privacy implications of technology in general. Implicit in all of this is maintaining a level playing field among the various sectors that will continue to vie for investment business on the retail side.
Another area with regard to uniformity is the Uniform Securities Act. A NASAA team has been working very hard on this, spending hundreds of hours at drafting meetings, on conference calls, meeting with various sectors of industry, the American Bar Association and other regulators. There are many issues that need to be resolved, but it is my feeling that if NASAA is an active participant in this NCCUSL process (the National Conference of Commissioners on Uniform State Laws) that we can make this work for us in the long term. It will foster uniformity and efficiency. I want to commend the Small Firms Committee for its input in the draft of the Uniform Securities Act, especially as it relates to the snow bird and de minimis issues.
NASAA, I think, must be even more pro active on issues that affect investors both at the federal and state level. Issues of analyst independence, financial literacy in schools, Social Security reform – all these issues, and others, are opportunities for NASAA to make a difference in the debate.
As for our relations with our fellow regulators at the SEC and the NASD, although we have increased our cooperative efforts, we have a long way to go. I think it is important to realize that today investors are the largest constituent group in the United States, larger than organized labor, Democrats, Republicans, baby boomers or seniors. State securities regulators, federal securities regulators, self-regulatory organizations and the exchanges have a duty to serve and protect.
As regulators, our jobs have never been more important, or, I think, more demanding. And given our limited resources, we simply have to do a better job of coordinating, of sharing and of supporting one another. Several of us at NASAA recently met with SEC Chairman Harvey Pitt. We emphasized the importance of complementary, not duplicative, regulation. The largest constituent group in the country – investors – will expect and demand no less from us.
Having said that, it is my belief that NASAA needs to step up coordination and cooperation with other regulators, specifically state and federal banking regulators and state insurance regulators.
With Gramm-Leach-Bliley, we’re going to see more and more consolidation in the financial services sector.
While this doesn’t mean that regulators need to consolidate, we do need to consult, coordinate and cooperate. That’s part of the NASAA vision statement and that’s part of my agenda.
In another area, we all see the problems with independent life insurance agents selling promissory notes, viatical settlements and investments in pay telephone and ATM schemes. To fight these types of fraud, we need to work closer with state insurance regulators. Recently, I attended an enforcement meeting of the National Association of Insurance Commissioners. Several NAIC members will be joining us at our Enforcement Conference in January. If we are going to get a handle on this problem, we need to work together. I mention this because this should be of interest to you as well. While promissory notes and viatical settlements and ATM schemes are off-market products, they should concern the legitimate industry. Monetary losses from these types of products, some involving outright fraud, translate into customers and money you don’t have. At this point in our economy, that’s money you would like to have in the portfolios of your clients. I’m talking about hundreds of millions and perhaps billions of dollars.
Another area that I am concerned about is the proliferation of independent broker/dealers and the supervisory problems we have seen. This is an area that I am going to ask the Broker/Dealer Section, headed by Frank Widmann, the securities commissioner in New Jersey, as well as by the Enforcement Section, headed by Brad Skolnik, the securities commissioner in Indiana, to consider as they plan agendas for the coming year.
To bring this full circle, I’m going to end where I began: with my commitment to uniform, fair regulation. Uniformity not only makes your lives easier, it helps regulators concentrate resources where they are most needed: keeping bad people out of the industry. One of the items on my agenda is to set up a series of small, concentrated meetings with industry representatives. I would like the SIA Small Firms section to be a part of this. As I said earlier, I was very pleased that Bill Alsovar and Sandy Masek addressed our business meeting in San Francisco to outline for NASAA members the concerns of small firms as they relate to regulation by state securities regulators. I hope we can continue these sorts of meetings going forward. Feel free to call me. I’ll be here to listen.
Let me be clear: We all have the same goal. We want to keep the trust of investors. Good business for you is good business for America. Fair regulation maintains investor confidence. It all boils down to this: although we may have differences from time to time, we are on the same team. Our goals are the same. I am looking forward to working with all of you and I promise I will be available to discuss both issues as they arise or problems that need to be solved. As I said before, we all want to earn and keep the trust of investors.
Thank you again and I’d be happy to try and answer a few questions.
October 12, 2001