NASAA Comments on Treasury Department Financial Institution Regulatory Review

“Our existing regulatory structure, particularly as it pertains to the securities markets, needs no fundamental restructuring.”

WASHINGTON, D.C. (November 30, 2007) — The North American Securities Administrators Association (NASAA) today voiced strong support for the current regulatory structure for the securities industry and cautioned against a significant overhaul in an effort to enhance the competitiveness of U.S. capital markets.

“The millions of investors in this country – for the most part hardworking, middle class citizens, not Wall Street CEO’s – deserve a much better justification for a regulatory overhaul if their financial futures are to be placed at risk,” NASAA President and North Dakota Securities Commissioner Karen Tyler wrote in a comment letter to the U.S. Department of the Treasury regarding its Review of the Regulatory Structure Associated with Financial Institutions. “We look forward to working with the Department of Treasury to ensure that investor and consumer protections are not sacrificed in the name of regulatory reform.”

NASAA favors prudent changes where necessary to preserve or enhance the health of our markets. “We have always been willing to discuss regulatory reforms that strike the appropriate balance between regulatory efficiency and protections for all investors,” Tyler wrote. “But regulatory reform, as the concept is currently framed, is neither. Our existing regulatory structure, particularly as it pertains to the securities markets, needs no fundamental restructuring. NASAA believes that pressuring for a significant overhaul of our current system at a time when our relationships abroad and our domestic economy are under extraordinary pressure is imprudent.”

Over the years, a system of regulation has developed in the United States that has allowed financial institutions to thrive. This is in large part due to the high standards placed on prospective entrants as well as provisions for ongoing compliance, enforcement, and redress in the courts. “By fostering issuer and investor confidence, these regulations attract capital,” Tyler wrote. “Yet, because these strong investor protection measures are minimized by other major world markets in favor of concessions to the profit motive, the United States maintains its leadership position by a wide margin.”

NASAA noted that recent calls for regulatory reform share a universal set of “improvements” designed to ease perceived industry burdens. “Each reform package offers industry less bureaucracy, fewer constraints, and wide latitude in matters of conduct,” Tyler wrote. “We are troubled, however, by the lack of discussion about the effects of these reforms on the retail investor. We observe a lack of principle within “principled regulation” models that have nothing to say about investor protection.”

We encourage the Treasury not to lose sight of the regulator’s primary function: to protect investors and capital. We believe that ‘regulatory reform’ should seek to ease needless burdens on market participants. It should aim to speed and improve understanding of and reaction to product and market innovations. Ultimately, we believe that any ‘reform’ should, as a matter of first principle, seek to maintain the critical balance required to protect investors and capital alike. Thus far, our adherence to this basic mission has forged the success of our markets,” Tyler wrote.

NASAA also said it is “both appropriate and wise” for states to continue to play an integral role in the regulation of financial institutions that do business within their borders. “While there is a need to ensure that regulations are not literally duplicative, it seems to us unwise to artificially divide state and federal regulations based on system versus consumer protection when both are inextricably linked and states clearly have a compelling interest in all aspects of financial services regulation.”

One of the hallmarks of the U.S. system of securities regulation is its effectiveness in early detection of misconduct, both large and small, Tyler wrote. “A cornerstone of this effectiveness is the traditional cooperation between state securities regulators and the SEC,” she wrote. “The combination of complimentary yet unique skills and strengths works as a multiplier for efficiency and effectiveness.

“We would ask Treasury to remain mindful of Congress’ intent when it enacted the National Securities Markets Improvement Act (NSMIA). There, Congress clearly intended to preserve the robust – indeed indispensable – role that the states’ have historically played with respect to national as well as local securities offerings,” Tyler wrote.

The oldest international investor protection organization, NASAA’s membership consists of 67 state, provincial, and territorial securities administrators in the 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Canada, and Mexico.

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NASAA Comment Letter

For more information:
Bob Webster, Director of Communications
202-737-0900

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