May 17, 2022
NASAA 2022 Public Policy Symposium
Thank you, Karima. We appreciate the kind welcome to Washington.
I began my term as NASAA president last September and in that time, there has been a flurry of activity at NASAA. As any former NASAA president will tell you, our membership is an amazing group of dedicated professionals who generously commit their time, talents, and expertise to our investor protection mission. It’s my privilege to now share a few accomplishments as well as updates on some of the work underway at NASAA.
We are nearly three years from the SEC’s adoption of Regulation Best Interest and June 30th marks the two-year compliance anniversary. NASAA’s Reg BI Implementation Committee has been hard at work conducting surveys and exams aimed at assessing compliance with the standard. Last fall, we released survey results providing the first comprehensive look at broker-dealer policies and practices since the implementation of Reg BI. While there have been some improvements, overall the results revealed most firms continued to operate in the same manner as they did under the suitability rule, especially when it came to harmful compensation conflicts. States are currently conducting follow-up inspections of branch offices to gain additional insight in how firm practices and procedures are, or are not, serving the best interests of clients as required by the rule. We look forward to sharing an analysis of our findings later this year.
Last fall, NASAA members approved a Diversity, Equity, and Inclusion statement setting out goals and priorities for our organization. The NASAA DEI Committee developed the statement and has been working diligently with a wide variety of committees and other stakeholders within NASAA to implement it. The committee has engaged with fellow regulators and industry to learn and share information and they are developing tools and techniques designed to reach traditionally underserved and under-represented communities. Our DEI work is yet one more way in which we seek to protect investors and provide opportunities for participation in the capital markets.
At the beginning of this year, NASAA announced its top Investor threats for 2022, which revealed the growing risks of cryptocurrency and digital asset fraud and scams. That’s been followed up recently with ground-breaking enforcement cases filed by Texas, Alabama, New Jersey, Kentucky, and Wisconsin for alleged frauds linked to the meta-verse. Unfortunately, this is a pattern that is all too familiar to state regulators – bad actors looking to take advantage of the hype surrounding new technologies. While state regulators are on the front lines of cutting- edge cases working to stop fraud and other misdeeds, we are equally committed to a constructive dialog on the topic of an appropriate regulatory framework for digital assets.
NASAA’s Federal and State Legislation Committees have developed a set of principles to guide policy makers in their deliberations over the appropriate regulatory framework for products such as digital assets. As described in the principles, the best path forward to protect investors, support responsible capital formation, and promote innovation and inclusion is one that is familiar to us all. It’s the path that’s been tread many times before with well recognized rules and principles laid out over decades of securities regulation. It is a path that has facilitated countless innovations in products and services within our capital markets. We see no need to develop new regulatory structures or regimes for products and practices that fit squarely within our existing regulatory framework.
There are many voices, interests, and perspectives involved in the issues I’ve touched on. And many of you may know that NASAA members, SEC, CFTC and FINRA staff hold a separate meeting in advance of our Public Policy Symposium to discuss key regulatory matters. I get asked regularly about communication and engagement with our regulatory partners and I want you to be reassured that our engagement does not begin and end at this annual meeting. Or maybe there are those that would prefer that to be the case. I want to highlight a few examples of our cooperative and collaborative efforts.
Working with our partners at the CFTC, state regulators and the CFTC have brought cases involving the sale of precious metals mostly to senior investors. In these cases, promoters pushed investors to liquidate securities to buy various precious metals at fraudulently inflated prices. Our united front sends a clear message that states and the CFTC stand ready to put a stop to exploitative practices linked to commodities transactions.
In another example of state and federal enforcement actions, earlier this year NASAA and the SEC separately announced settlements with a firm over its crypto lending platforms. The message here reiterates the point that innovation can and must be done within the rules.
I also want to highlight ongoing work between NASAA, the SEC and FINRA involving an initiative to promote the use of trusted contacts to protect investors, particularly older investors, in cases of suspected financial exploitation. And on the topic of senior investor protection, we have all, industry and regulators alike, taken steps to confront the scourge of financial exploitation of seniors and other vulnerable adults. From implementing new laws and rules that give firms more flexibility in responding to cases of suspected exploitation to programs designed to keep a focus on this priority, I believe we are making a different. Just last week the U.S. House passed, on a strong bipartisan basis, H.R. 5914, a bill designed to augment efforts underway in the states to protect older investors from financial fraud and abuse. Thank you to the many organizations representing industry and investor advocates for supporting this important legislation.
As you can see, these past eight months have been very busy and productive. I want to thank our members and the amazing team at the Corporate Office for all of their work these past eight months and I look forward to what we will accomplish in the coming months.