NASAA Outlines Legislative Agenda, Announces "Aggressive Advocacy Agenda" (with Lofchie Comment)

The North American Securities Administrators Association ("NASAA") announced an "aggressive advocacy agenda" calling for affirmative Congressional action to promote investor confidence.

During a news conference at the National Press Club, NASAA President and Arkansas Securities Commissioner Heath Abshure, and Steve Irwin, NASAA President-elect and Pennsylvania Banking and Securities Commissioner, outlined the following five specific areas in which they will seek Congressional action in the 113th Congress:

1. Promote Sustained Investor Confidence by Ensuring Market Transparency, Enhancing Investor Education, and Imposing Strong Penalties: Under this category, NASAA cited goals as diverse as regulating hedge funds and high-frequency trading, on the one hand, and protecting seniors, on the other.

2. Policies Intended to Spur Capital Formation Must Balance the Need to Maintain Investor Protection: This is essentially to reverse or limit the JOBS Act.

3.Support Strong and Complete Implementation of Investor Protections in the Dodd-Frank Act by the Conclusion of the 113th Congress:The principal focus of this item is to impose a fiduciary standard on broker-dealers.

4. Regulation of Investment Advisers Is an Inherently Public Function That Should Be Performed by Government Regulators, Not Outsourced to an Industry Self-Regulatory Organization: NASAA does not want a FINRA-type SRO for Investment Advisers and it suggests a means to fund the regulation of advisers.

5. State Authority Should Not Be Preempted, and Should Instead Be Expanded: NASAA suggests that the states should have greater authority to regulate small offerings.

NASAA indicated that it will actively seek legislation in various areas, including legislation to:

• authorize the SEC's Office of Compliance Inspections and Examinations to collect user fees from the investment advisers it examines;
• permit reasonable civil recovery for fraud associated with crowdfunding and other small offerings;
• strengthen investor protection provisions weakened by the JOBS Actto minimize the Act's enormous potential for abuse; and
• empower state regulators to curtail the use of mandatory pre-dispute arbitration clauses in contracts between state-registered investment advisers and their clients.

Lofchie Comment: If there is a theme to the NASAA agenda, it is "more." There should be more power granted to the states, there should be more regulation by more regulators (52 regulators, by NASAA's reckoning), and the federal government should regulate more vigorously.

In defense of the NASAA position, I am sure that the federal government does not have enough resources to attend to the protection of all retail investors, particularly those who are the victims of small-scale crimes, resolution of which will not generate attention.

In defense of market participants, I don't know how it is possible to operate a national financial business if one is to be subject to 52 sets of rules in addition to national rules. At some point, the financial system simply breaks under the weight of the diversity of regulation and the number of regulators, each with its own agenda. In fact, the financial system is not really able to keep up with the new rules being imposed by the federal government (which are not limited to the rules under Dodd-Frank); it is hard for me to imagine how the system were able to work if each state could regulate without national coordination.

Certainly, it makes sense for there to be an examination of the proper boundaries between federal and state powers, and how those boundaries should apply as to the various parts of the financial industry: securities, banking, futures, swaps, and insurance. But if the outcome of the examination were that every jurisdiction could go its own way in making rules, there would be a much smaller and weaker national financial system left to regulate.

Click hereto view NASAA's legislative agenda in full (links externally to NASAA website).
See also: NASAA's Executive Summary.