On September 15, 2009, Denise Voigt Crawford, the Securities Commissioner for the State of Texas, was installed as the new President of the North American Securities Administrators Association (NASAA). NASSA is comprised of 67 state, provenance, and territorial securities regulators throughout North America, including regulators from all 50 U.S. States and the District of Columbia.
In speaking to the NASAA membership and invited guests, Ms. Crawford lauded the successes of state securities regulators while criticizing the federal regulators, particularly the Financial Industry Regulatory Authority, or FINRA.
Among other things, Ms. Crawford criticized FINRA’s request to become the self-regulatory organization for investment advisors, deeming such a proposal “inappropriate because it embodies a flawed approach to regulation since a self-regulatory organization is inherently conflicted and is not independent.”
In another swipe at FINRA, Ms. Crawford criticized the current mandatory arbitration system, stating, “we all know arbitration is not working. It is time to end mandatory, industry-run arbitration for investors. The harmful effects of mandatory arbitration have been well-documented in numerous studies.” Presently, customers of brokerage firms are required to arbitrate any disputes through an arbitration forum sponsored by FINRA. Because those arbitration panels and policies have proven unfair to consumers, “mandatory arbitration clauses should be banned without delay and investors should have the right to choose between litigation or arbitration as the forum for resolving disputes with their financial services firms, ” Ms. Crawford said. “And if investors elect arbitration,” she added, “they should be able to choose an independent arbitration forum, not just a forum operated by the industry.”
Ms. Crawford was also critical of the Securities and Exchange Commission. “A one size fits all model of regulation is not the best model,” she said. “It results in an insular culture that stifles creative regulatory insights and responses. It also invites regulatory capture by becoming too closely aligned with the industry it is set up to regulate.” A large, overly centralized regulatory scheme can also get bogged down in bureaucracy. Sadly, we have seen all this happen at the SEC.
Ms. Crawford also outlined the upcoming priorities for the organization, including the following:
- Restoring state and federal regulatory review of private offerings under Regulation D, Rule 506, which she characterized as having become a fertile ground for fraud since regulatory oversight was eliminated in the 1990’s.
- Urging the adopting of a fiduciary standard of duty for all investment professionals, including both brokers and investment advisors.
- Raising the dividing line between federal and state regulation of investment advisors from $25 million in assets under management to $100 million. Presently, states have authority only over investment advisory firms with $25 million or less.
- Increasing the uniformity of licensing processes among the states in order to promote efficiency in broker-dealer registration and ultimately reduce compliance costs for industry applicants.