The following is adapted from remarks given at NASAA’s Annual Conference on September 16, 2014 by William Beatty, NASAA President and Washington Securities Director, and Andrea Seidt, NASAA Past President and Ohio Securities Commissioner.
SEIDT: For the next 20 minutes or so, Bill will be sharing his thoughts about the current state of NASAA, initiatives that we’ve developed over the past year, new initiatives that he hopes will take root in the year ahead, and other topics of interest to those who follow the work of NASAA and individual state and provincial securities regulators in the United States, Canada, and Mexico. So Bill, if you’re ready, let’s go. I’ll start things off with an easy one. Who have you selected to serve on your leadership team this year?
BEATTY: One of the things I’ve learned in my almost 28 years as a regulator and my involvement with NASAA is that there is never a shortage of strong regulators willing to help guide our association. It’s no secret that we’ve seen many of our colleagues move on to other positions in recent years. But what is not well known, at least not yet, is the quality and depth of our bench. The new generation of securities regulators we’ve seen join NASAA are innovative, energetic and eager to share their insights to make our association strong. I am very pleased to announce NASAA’s new Board of Directors and Section Chairs. I’ll ask each of you to stand as your name is called and that we wait until all of the names have been called before recognizing everyone with a round of applause.
- Judy Shaw of Maine is our President-elect;
Our new Directors are:
- Joseph Borg of Alabama;
- Katie Daniels of Ontario;
- Melanie Lubin of Maryland;
- Jerry Rome of Colorado;
- Mike Rothman of Minnesota; and
- Daphne Smith of Tennessee.
I’ve asked the following to serve as Section Chairs:
- Heath Abshure of Arkansas, Corporation Finance;
- Lynne Egan of Montana, Investor Education;
- Bryan Lantagne of Massachusetts, Broker Dealer;
- Owen Lefkon of Delaware, Enforcement; and
- Patty Struck of Wisconsin, Investment Adviser.
SEIDT: Most people know you as a Corporation Finance expert. You were deeply involved in the development of NASAA’s new multi-state coordinated review system for Regulation A offerings and in developing our association’s positions on capital formation issues stemming from the JOBS Act over the past two years. You already delivered your first Congressional testimony on capital formation bills this past year and joined me in the Chair’s Office at the SEC to discuss these important policy movements. I know that you will continue to advance NASAA’s advocacy in this year. Looking ahead, what are some of your other priorities for the association?
BEATTY: Our conference theme: “Meeting Tomorrow’s Challenges Today” sums it up best. Each of my priorities fit that description. First, I look forward to seeing progress on the senior front. Under your leadership, NASAA launched the Committee on Senior Issues and Diminished Capacity last month. More than one in every three cases we handle as state regulators involves a senior investor. As we heard Sunday, issues revolving around diminished capacity are taking on increased urgency as our population ages. Our members have been hearing from broker-dealers about the challenges surrounding diminished capacity. We appreciate the need to develop guidance concerning how they should address clients with declining short-term memory and other signs of diminished mental capacity.
SEIDT: That is great. Who will NASAA be working on this initiative?
BEATTY: NASAA will be working with an Advisory Council of experts from government, business, senior advocacy organizations, academia and medical and legal practitioners, to inform the committee’s work as it moves forward. We are very pleased that the following individuals have agreed to work with NASAA as members of the Advisory Council. They include:
- Georgia Anetzberger, Gerontological Society of America;
- Marin Gibson, Securities Industry and Financial Markets Association;
- Nancy Heffner, Financial Services Institute;
- Skip Humphrey, former director of the Consumer Financial Protection Bureau Office of Older Americans and former Minnesota Attorney General;
- David Laibson, Harvard University;
- Ron Long, Wells Fargo Advisors;
- Brett Kandt, National Association of Prosecutor Coordinators;
- Naomi Karpp, Consumer Financial Protection Bureau Office of Older Americans;
- Daniel C. Marson, Alzheimer’s Disease Center at the University of Alabama-Birmingham;
- Mark Peterson,American Institute of Certified Public Accountants;
- Kathleen Quinn, National Adult Protective Services Association;
- Charles Sabatino, American Bar Association Commission on Law & Aging;
- Lori Schock, U.S. Securities and Exchange Commission;
- Jean Setzfand, AARP;
- Neil Simon, Investment Adviser Association;
- Brooke Stringer, National Association of Insurance Commissioners; and
- Geraldine Walsh, FINRA Foundation.
SEIDT: There is no doubt that senior investors will be a huge initiative for NASAA this year. I understand that you will also focus the association’s continued attention on technology. What can you share with us about those initiatives?
BEATTY: Coming from Washington State it shouldn’t be a surprise that another area of interest revolves around technology. I am very excited about the upcoming rollout of our Electronic Form D (EFD) system. This project has been a long time coming and we expect it to create an efficient, streamlined system that will satisfy state Form D filing requirements. Issuers and their service providers will benefit from this uniform and effective regulatory tool. The vendor developing the system is here demonstrating some of the tool’s early functionality and hearing important feedback.
SEIDT: I want to thank you, Bill, for all of your and Washington’s work to get the EFD system developed. I know that NEMO is another area that you are looking at. What should we expect there?
BEATTY: I expect to see continued growth in the use of NASAA’s Electronic Examination Modules, or NEMO for short. This software tool was developed by NASAA and used by 35 member jurisdictions. We hope to add additional jurisdictions to the program this year. NEMO allows examiners to perform BD and IA exams in a secure, digital environment and allows statistical reporting in a timely manner. This is a significant enhancement toward improving the efficiency and effectiveness of state securities examiners as they conduct examinations and I want to give a shout out to Mike Huggs of Mississippi for his tireless efforts supporting this project. NASAA also is very concerned by cybersecurity issues. As you read last week, we are focusing on understanding how these issues are affecting small and mid-sized IAs.
- The good news is that very few state-registered investment advisers, just 4 percent, have experienced a cybersecurity incident and only 1 percent have experienced a theft or unauthorized access to confidential information.
- The relatively low rate in cybersecurity incidents is encouraging, but cyber-attacks are on the rise in the financial services industry and I urge investment advisers to remain vigilant in their efforts to guard against unauthorized access to their client’s information.
- We are looking forward to continuing our conversation with industry about this vital topic and working toward recommended practices.
SEIDT: Yes, the Internet presents the quite the pickle for us states securities regulators. What’s going on in the enforcement area with the Internet, especially NASAA’s internet fraud investigations?
BEATTY: I want to commend the ongoing work of NASAA’s Internet Fraud Investigations project group under the direction of Jake van der Laan of New Brunswick. Our upcoming enforcement report shows continued growth in Internet and Social Media fraud. Jake’s group has been working overtime to identify frauds and provide detection tools and investigative resources to NASAA members and I expect to see more in the year ahead.
SEIDT: That’s quite a lot on your plate, Bill. The audience members should know what a leadership role Bill and his home state of Washington has had in each of those areas. Washington is the first and I believe only state thus far to legislatively address firm reporting and account handling practices when faced with an investor with diminished capacity. It’s great to hear you mention the strong work of our member in New Brunswick. Many people south of the Canadian border may think of NASAA only as a state-based group, but our membership is far greater than that. How do you see NASAA as an international investor protection organization?
BEATTY: Being so close to one of our more active members in British Columbia, I have great respect and admiration for our Canadian members. They bring so many resources to NASAA’s table, but more important is their fresh approach to both regulation and investor assistance. For example, it’s no secret that our Canadian members are powerful in the field of investor outreach and education. They are also active participants in IOSCO, the International Organization of Securities Commissions. A number of the issues we are dealing with know no borders. Take bitcoin for example, or crowdfunding, which is gaining ground in Canada. Over the next year I hope to strengthen the international nature of NASAA by building stronger connections with our members in Canada and Mexico.
SEIDT: One of the things that I’ve enjoyed in my involvement with NASAA has been the unique ability to work with our peer state and provincial regulators in Canada and Mexico. I’ve also enjoyed working with our peer regulators at the national level. How do you view the relationship between NASAA, the SEC and FINRA? Are there any goals you would like to achieve during your Presidency that will allow NASAA to build upon those relations?
BEATTY: Look, no one can go it alone. We may have our differences, at times, but the state-federal-SRO partnership is critical to effective investor protection. I think everyone knows where NASAA stands on preemption. That said, I look forward to continuing the dialogue with SEC Chair White in the weeks ahead. I plan on emphasizing our position that the SEC should remove its preemptive language from its Regulation A rule proposal. Collaboration between regulators is important because we must leverage our resources to protect investors.
SEIDT: I could not agree more, Bill. We have worked very hard to strengthen relationships with our federal peers. You also were an important of discussions that I had with Rick Ketchum last year. What can you tell us about our work with FINRA?
BEATTY: As for FINRA, I think our efforts to improve communication between our two organizations has been effective over the past few years thanks in large part of the efforts of Patty Struck and Keith Woodwell who lead our FINRA liaison effort. I look forward to meeting with Rick Ketchum to discuss how we can continue to strengthen our relationship. For example, NASAA recently endorsed FINRA’s efforts to improve the expungement process in order to prevent the removal of important information from the Central Registration Depository. We look forward to working with FINRA on further efforts to improve the expungement process.
SEIDT: If you only had one message for our industry members of the audience to take back to their colleagues, what would that be?
BEATTY: We probably have a lot more in common that you might think. Sure, our primary mandate is investor protection. I think we would be hard-pressed to find anyone in the audience that is against investor protection. Equally important to NASAA members is promoting and assisting capital formation, particularly by small businesses. We regularly meet with small businesses to help them succeed in our jurisdictions. Industry, regulators and investors benefit from capital markets that are efficient, fair and transparent.
SEIDT: Once again, I couldn’t agree more. Can you tell us what you’ve been doing in Washington to help small businesses navigate the state regulatory process?
BEATTY: In Washington, we have worked with many companies seeking to raise capital. Our staff routinely makes presentations to entrepreneurs, small business development centers, and other local groups on what businesses need to know if they are contemplating raising capital. This level of service helps to ensure small businesses access the capital needed to start or grow their businesses in a manner consistent with both state and federal regulations. With our assistance, many companies, including wineries, breweries, retailers, and even a company that turns manure into electricity, have accessed capital from local investors. These companies receive a level of service from our staff that cannot be duplicated by the SEC. Yes, there certainly has been a lot of work in this area at the SEC and State level. Crowdfunding is another exciting area that Washington has led. With the JOBS Act, crowdfunding has become part of the national discussion in both the U.S. and Canada. NASAA members understand, that in many respects, equity crowdfunding is simply another type of small direct public offering that we have promoted for years. A growing number of jurisdictions have adopted crowdfunding provisions in their rules or statutes recognizing that equity crowdfunding, done responsibly, with appropriate disclosure and safeguards, may be another valuable tool that small companies can use to raise capital.
SEIDT: Taking on the role of NASAA President is a significant three-year commitment, you have to lead the association on matters of international importance while still managing affairs back at home. NASAA is headquartered in D.C. so an additional occupational hazard for you serving from the great state of Washington will be a regular, cross-country commute – something that you’ve already had many occasions to undertake in your role as President-Elect. What is it about NASAA that has motivated you to assume this important office?
BEATTY: No one would volunteer for this job…UNLESS he or she understood, as I do, the critical importance of NASAA’s mission and the many benefits of NASAA participation. Tomorrow, I will celebrate 28 years as a state regulator. For about 24 of those years, beginning with a call from Diane Young-Spitzer of Massachusetts inviting me to join her Investment Company Committee, I have been involved with NASAA. I remain involved for a variety reasons. In the spirit of David Letterman, here is my list of Top Professional and Personal Reasons Why I Agreed to Become NASAA President.
- NASAA participation is intellectually stimulating. Working with other regulators and industry on difficult issues challenges us to think creatively.
- I strongly believe in NASAA’s mission to protect retail investors and foster capital formation. Balancing our obligations to these communities is sometimes challenging, but providing assistance to these communities is hugely satisfying.
- State regulation is important. Without us, who will assist small businesses, examine investment advisers, or enforce compliance with the securities laws?
- The NASAA Corporate office staff are an incredibly talented and caring group of people. From Josephine at the front desk to Joey Brady, our Acting Executive Director, NASAA is blessed with a staff that is both highly capable and firmly committed to our goals.
- Likewise. I am fortunate to work with an outstanding group of regulators from around North America. I am awed by the talent I am surrounded by.
- Andrea, you and Judy [Shaw, NASAA President-elect] humble me with your many talents.
- Heath [Abshure, former NASAA President], your eloquence on NASAA’s behalf is legendary.
- Jack [Herstein, former NASAA President], your wisdom has helped guide this organization for many years and I am grateful that you have agreed to share this wisdom with our incoming members as new member advocate.
- Similarly, I am blessed with an outstanding staff at the Washington Securities Division. I am joined today by Faith, who you have already met, and Susanne Sarason, our enforcement chief. Collectively, Suzanne, Faith, and our other Program Manager, Joanne Jones, have about 80 years of combined experience, and more importantly, are possessed with extraordinary common sense.
- Finally, and most importantly, a huge thank you to my lovely wife Janet for putting up with me and the crazy schedule of a NASAA president.
My two-plus decades of NASAA participation have been the highlight of my career. It is both humbling and a privilege to begin my year as NASAA President. I am grateful for your support and pledge to do my utmost to justify your faith in me.
SEIDT: Thank you, Bill.