NASAA Statement on Obama Administration’s Principles for Financial Services Regulatory Reform

WASHINGTON (February 26, 2009) – The following is a statement from Fred Joseph, President of the North American Securities Administrators Association (NASAA) and Colorado Securities Commissioner, on President Obama’s announcement yesterday of the core principles that will guide his administration’s efforts to reshape how the nation’s financial industry and markets are regulated.

“As the regulators closest to investors, NASAA members agree that our system of financial services regulation must be transformed to better protect investors from the challenges facing our financial markets. We are committed to working with the Obama Administration’s economic team, in collaboration with Congress, as they develop recommendations for regulatory reform to ensure that these recommendations promote Main Street investor protection, which state securities regulators have provided for nearly 100 years.

“Regulating our financial markets is an enormous challenge, one that can only be met through the combined efforts of state and federal regulators, working together to protect the integrity of the marketplace and to shield consumers from fraud and abuse. Particularly in the areas of enforcement, licensing, and compliance examinations, state regulators provide indispensable consumer protections. At the same time, we should seek opportunities within this collaborative framework to make regulation more efficient in order to achieve President Obama’s goal of restoring accountability, transparency, and trust in our nation’s financial markets.

“President Obama’s core principles for regulatory reform are aligned with those recommended by NASAA late last year. For example financial institutions that pose systemic risks to our markets should be subject to government oversight and the current regulatory structure should be modernized and streamlined where possible without sacrificing important investor protections. We recommend enhanced risk assessment, not by creating a new federal regulator, but by improving the tools and methods that federal and state agencies have at their disposal for identifying and limiting risk.

“We agree with President Obama that regulatory gaps must be closed in order to rebuild trust in our markets. Our system must be more comprehensive and transparent, so that all financial markets and instruments are subject to effective regulation through licensing, oversight, and enforcement. We also support efforts to enhance trust and transparency in the financial system by promoting investor education and the greater use of plain language.

“President Obama’s call for ‘strong and uniform supervision of financial products marketed to investors and consumers’ can be met, in part, by strengthening the standards of conduct that apply in all financial sectors. In the area of securities regulation, for example, we should impose the fiduciary duty—in addition to existing standards—on all securities professionals who provide investment advice, including broker-dealers.

“NASAA appreciates President Obama’s demand for stricter accountability and his call to hold executives who violate the public trust responsible for their actions. Enforcement is one of the most effective tools for deterring lawless behavior in our markets, but for years, it has received far less support than it deserves. Those who violate the law should face tougher punishments.

“Finally, we support President Obama’s statement that ‘strong financial markets require clear rules of the road.’ NASAA members believe that a ‘principles-based’ approach to regulation is no substitute for a clear and strong system of rules. Broadly framed standards of conduct can serve as helpful guides for industry as well as useful enforcement tools for regulators, but standing alone, they leave too much room for abuse.”

NOTE: Details about NASAA’s Core Principles for Regulatory Reform in Financial Services are available here.

For more information:
Bob Webster, Director of Communications

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