The North American Securities Administrators’ Association (NASAA) held its 91st Annual Conference on September 15-17, 2008. The regulators, as well as industry experts, discussed the future of global financial services. Among the regulators who played a primary role at the Conference was Fred Joseph, Colorado Securities Commissioner, who is the President of NASAA for 2008-09.
The following were among the issues discussed:
- Auction-rate Securities
During the broker-dealer forum, state regulators generally explained how they were handling the auction-rate securities matters. They encouraged firms to contact clients to inform them about their purchases and holdings in such securities because state regulators have learned about numerous customers who were unaware that they owned auction-rate securities. In addition, in his remarks, Mr. Joseph explained that examinations conducted by the 12-State Task Force have led to settlements “promising more than $50 billion to be returned to investors.”
Mr. Joseph noted that state securities examiners would conduct examinations of broker-dealers and investment advisers within their jurisdictions using the NASAA Electronic Examination Modules database project (or NEMO). He anticipated that NEMO would significantly enhance examinations. In addition, he noted that NASAA members conducted more than 6,600 investigations for the 2006-07 reporting period, resulting in 2,276 enforcement actions, $616 million restitution to investors, $55 million in penalties, and more than 1,000 years of jail time. Panelists also noted that the Investment Advisor Section of NASAA is gearing up for the 2009 coordination exams which will take place between January and May 2009. NASAA is the only regulator that examines investment advisers with less than $25 million in assets under management. As in years past, examiners will review for problems with registration, unethical business practices, fee errors or inconsistencies and inaccurate financial statements, among other issues.
- Future Regulation and Market Risks
Mr. Joseph explained that the job of protecting investors is “too large” to be overseen solely by one federal agency, by one self-regulatory organization, or by state securities regulators alone. Instead, he stated that the various regulators need to work “in a collaborative, coordinated and cooperative manner with one another.” He highlighted the cooperation that the regulators had in working to fight against senior investment fraud. In addition, on various panels, certain panelists suggested that insurance companies and investment banks need more oversight. Mr. Joseph explained that he did not intend to “shift the direction” of NASAA, but would build on its prior accomplishments.
Numerous panelists commented on the future of regulation and concerns about the market as well. During one panel on the Future of Global Financial Services, Ira Hammerman, Senior Managing Director and General Counsel, Securities Industry and Financial Markets Association (SIFMA), called for a “prudential supervisory approach” whereby regulators and industry would have a “consultative relationship,” with principles-based regulation. In contrast, Mercer Bullard, President and Founder of Fund Democracy, Inc., insisted that enforcement arms of securities regulators were crucial and pointed out that state regulators needed an even more prominent role. Another panel discussed the risk factors that contributed to the current marketplace, including increased value of the real estate market, off-balance sheet accounting, transparency, and Standard & Poor’s rating systems.
- The next presidential administration
Several speakers made clear throughout the conference that given the problems in the current marketplace and the increasing globalization, the next administration – regardless of whether it is Republican or Democrat – will need to reexamine current rules to: (1) ensure that regulation requires the full disclosure of conflicts of interests and risks inherent in the complex financial products/transactions in the marketplace; (2) take into account the global economy; and (3) modernize decades-old statutes. Representatives of Senators McCain and Obama who participated as panelists agreed that state securities regulation would remain in effect.
- Senior designations
Mr. Joseph announced that last month the NASAA Model Rule on the Use of Senior Designations and Certifications was approved by the California legislature and was awaiting the governor’s signature. New Hampshire had previously adopted the NASAA Model through legislation. In addition, Virginia, Washington and Wisconsin have adopted the NASAA Model Rule through regulation, while 11 other states have proposed adopting it.
At the conference, Mr. Joseph introduced NASAA’s new Board of Directors:
- President-elect, Denise Voigt Crawford of Texas;
- Past President, Karen Tyler of North Dakota;
- Chris Biggs of Kansas;
- Joe Borg of Alabama;
- Glenda Campbell of Alberta;
- Melanie Lubin of Maryland;
- David Massey of North Carolina; and
- Michael Stevenson of Washington.
In addition, the heads of the various sections were introduced, including the following:
- Broker-Dealer Section, headed by Matt Neuber, Arizona
- Corporation Finance Section, headed by Jack Herstein, Nebraska
- Enforcement Section, headed by Jim Ropp, Delaware
- Investment Adviser Section, headed by Patty Struck, Wisconsin
- Investor Education Section, headed by Bruce Kohl, New Mexico