NASAA unveils legislative agenda that “puts investors first”

Investors need more information, education, protection: state regulators

WASHINGTON (December 23, 2002)– Investors need more information, more education and more protection, say state securities regulators, who today laid out their legislative agenda for 2003 and the 108th Congress.

“These are trying times for investors,” said Christine Bruenn, president of the North American Securities Administrators Association (NASAA), at a briefing at the National Press Club. “Many of them are in financial shock. Many of them are confused. Many of them are mistrustful. Investors’ concerns need to be near the top of the agenda for state and federal lawmakers.”

Bruenn, who is Maine’s securities administrator, said NASAA’s agenda “would give investors what they need—more information, more education, more protection. Our agenda puts investors first. We challenge the industry to do the same.”

Saying investors are trying to cope with a climate of uncertainty, skepticism and distrust, Bruenn stressed the need for regulators and the securities industry to work together to restore confidence in our markets. “We need to change the culture on Wall Street. Investors should come first—before commissions, before deal making, before bonuses.”

December 23, 2002

There’s no denying the last few years have been difficult for individual investors. In order for their confidence to be restored, investors must be able to rely on the integrity of the markets and rely on the judgment and good faith of industry professionals.

The past two decades have brought enormous change to Wall Street and all our financial markets. We’re now a nation of investors, 84 million strong; half of all U.S. households own stocks or mutual funds. Americans are relying on securities products and our securities markets to create the wealth they will need for retirement, to buy a home, to pay for their children’s education and to meet other unforeseen needs.

The North American Securities Administrators Association (NASAA) , representing state securities administrators, plans to work with the 108th Congress, the Bush Administration, and the state legislatures to accomplish a number of goals designed to restore investor confidence in our capital markets, enhance access to information for investors, strengthen our financial services system, and retain U.S. global competitiveness.

The following summarizes several issues NASAA and the states will pursue in 2003.

1. A Strong and Effective Securities Regulatory Structure

NASAA believes adequate funding for the Securities and Exchange Commission (SEC) and state securities regulators is essential for Fiscal Year 2003 — to hire staff, add resources, enhance enforcement and modernize technology.

The SEC and state securities regulators must continue to build on a coordinated and complementary working relationship, including working on analyst conflicts rules and other national regulations. Regulators need to leverage resources to uncover the problems, find out if laws were broken, punish wrongdoers and write and implement appropriate market-wide rules to address problems. NASAA expects to be closely and actively involved in future federal rulemaking processes. Together we can maximize our effort in fighting investment fraud and protecting citizens in our states.

At the same time, NASAA will vigorously fight any attempt to restrict the authority and deny the states’ rights to take enforcement actions to effectively regulate industry professionals and the local capital markets. Our markets are as open and transparent as they are — even with their problems they remain the envy of the world — because of our complementary system of state, industry and federal regulation. Restricting the authority or the resources of any one of these regulators serves to undermine the overall regulatory system.

2. Enhanced Investor Access to Information Regarding Industry Professionals

Today, investors can search online for information about their stockbrokers and financial advisers but they may have to wait days to find out, for example, if a broker has a disciplinary history. The NASD maintains the Central Registration Depository (CRD), which contains information about the nation’s nearly 700,000 broker agents and 6,000 firms. While the NASD has explicit liability protection for releasing this information to consumers over the phone or via fax, it is not protected should investors directly access information online from the CRD database. Liability protection for the NASD for online disclosure of CRD records would make it easier for investors to do their homework. During the last session of Congress, language to address this issue was included in HR 1408, the Financial Services Antifraud Network Act of 2001, which was passed overwhelmingly by the House, but was never considered by the Senate. The NASD needs this liability protection so investors can receive real-time answers to their questions about their broker.

The states recognize the value to industry and investors alike of an electronic licensing database. To streamline the registration process for investment advisers, all states currently accept electronic filings on the Investment Adviser Registration Depository (IARD). Using modern information technology and the Internet, this one-stop electronic filing system, similar to CRD, offers investment advisers several advantages. It eliminates paper filings, it can satisfy state notice filing requirements with one filing, and it accepts automatic payment of state fees.

3. Investor Education for All Americans

With millions of new investors in the market and discussion about the privatization of a portion of Social Security, investor education is more important than ever. State securities agencies are leaders in grass-roots investor outreach and instruction.

Funding at the federal and state level for investor education programs must be a priority. For example, the No Child Left Behind Act of 2001 authorized funds for personal finance education grants, but money for them hasn’t yet been appropriated. In addition, support is necessary for a bill similar to the Education for Retirement Security Act of 2002 to establish a grant program to enhance the financial and retirement literacy of mid-life and older Americans and to reduce the amount of financial abuse and fraud among such Americans.

On the opposite side of the age spectrum, credit card debt among college students has become an enormous problem. The Underage Consumer Credit Protection Act of 2001 is one approach to dealing with this growing crisis. NASAA supports financial education and other efforts to help avoid the growing problem of credit card indebtedness among college aged youth.

4. A Responsible Investment Advice Bill for Workers With a 401(k) Plan

NASAA supports the concept of allowing companies to provide independent investment advice to their employees participating in 401(k) plans. Employees need better advice on how to invest their 401(k) plans. NASAA will continue to work with Congress on improving a bill similar to the Independent Investment Advice Act of 2001 to define which persons would be deemed qualified to provide investment advice to those employees. For example, state securities regulators want to assure that individuals giving advice are registered investment advisers, registered representatives or registered broker-dealers and subject to appropriate regulatory oversight.

5. Fair and Balanced Regulatory Relief

As in previous years, NASAA will work with Congress on a regulatory relief bill that is an appropriate balance between regulatory efficiency and protections for all investors. It must be attentive to the concerns of those who wish to ensure that efficiency does not undermine the system of investor protection.

As an example, in 1999, NASAA worked closely with the Senate Banking Committee in drafting provisions of the Securities Markets Enhancement Act. NASAA was able to reach a consensus on such issues as adding rights and warrants on nationally traded securities to the definition of covered securities; increasing the maximum dollar limitation for exemption from registration of small offerings under Section 3(b) from $5 million to $12 million; eliminating notice filings and fees unless an investment adviser firm has a place of business in the state or has more than five clients in the state.

NASAA will oppose deregulatory measures that weaken the ability of state securities regulators to combat violations of securities laws.

6. Responsible Tax Incentives To Increase Participation in the Markets

Mindful of the fiscal impact of certain tax advantaged accounts, NASAA will work with Congress to enact legislation that would help Americans save more in tax preferred accounts such as IRAs and 401(k) plans.

Other issues such as the accelerated write-off of losses should be reviewed to restore confidence and increase participation in the capital markets.

7. Tougher State Corporate Governance and Corporate Fraud Laws

NASAA supports state legislative efforts to protect citizens from being victimized by securities law violations. Bills have been proposed in Kansas, Ohio, North Carolina and elsewhere that complement the Sarbanes-Oxley Act to increase white collar crime penalties and improve enforcement of the state’s securities laws.

At the federal level, NASAA is encouraged by promises by the Bush Administration to crack down hard on corporate crime. We are also monitoring the United States Sentencing Commission’s review of the sentencing guidelines applicable to securities and accounting fraud and related offenses.

8. Additional Protections for Senior Citizens

Scam artists often enrich themselves at the expense of senior citizens, the fastest growing segment of our population. NASAA will support legislation to assist law enforcement and prosecutors to ensure that those who take advantage of our nation’s elderly will be held accountable. We want to see the progress made with the Protecting Seniors from Fraud Act continue with enhanced attention to protect the public, especially senior citizens, against telemarketing and securities fraud. In addition, state securities regulators support an educational campaign to improve seniors’ ability to protect themselves against scams.


NASAA stands ready to work in close partnership with Congress, federal officials and other groups to ensure that an ambitious policy agenda is pursued that will both protect the American investor and restore confidence in the financial markets.

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2002 Headlines, Newsroom