Federal and state securities regulators need to communicate with each other more to protect investors, according to the North American Securities Administrators Association.
Although some coordination between the two levels of regulators takes place now, more “can be done to foster real-time, joint efforts to protect investors, promote responsible capital formation, and support inclusion and innovation in our capital markets,” NASAA said in releasing its congressional agenda on Friday. The organization, based in Washington, D.C., represents the nation's state securities regulators.
The Securities and Exchange Commission would do well to keep state regulators better informed of the commission’s actions and of trends it sees in the financial industry, the organization said.
“We would welcome additional memoranda of understanding and the establishment of additional processes to facilitate enhanced collaboration between state and federal regulators. Ultimately, investors and taxpayers benefit when we all work together in a positive and effective manner,” NASSA said.
This and other priorities set out in the 2023 Congressional agenda “reflect NASAA’s long history of collaborating with national policymakers on efforts to strengthen our capital markets and protect investors,” NASAA President and Iowa Deputy Insurance Commissioner Andrew Hartnett said in a statement. “We look forward to working with the 118th Congress and the Biden administration on policies that strengthen our complementary system of state and federal securities regulation for the benefit of main street investors and businesses.”
Congress should stop regulations from being eroded by those trying to reduce restrictions on the industry, but it also needs to eliminate redundancies between federal and state regulations that complicateand raise the cost of enforcing investor protections, NASAA said.
“Ultimately, investors and taxpayers will bear the costs of unnecessary changes to the securities regulatory framework,” NASAA said. For instance, Congress should not add regulations for digital assets, much of which are already covered by existing regulations, the group said.
Transparency should be increased on all levels of the regulatory process to help rebuild the trust the public is now lacking in the process, NASAA said.
“We believe that the proliferation and persistence of scams and offers that are ‘too good to be true’ are key contributing factors to the erosion of trust,” the legislative agenda said. Information on bad actors who are held accountable should be made available to the public, and the public should be better educated about spotting and avoiding scams.
More, not less, regulation by the SEC is needed concerning for capital formation by private markets, the group said. The lack of this information prevents regulators and legislators from knowing if the country is heading into another financial crisis.
Currently, “all but the most sophisticated, well-funded investors lack access to adequate information about the businesses and operations of the private companies in which they are investing.” Firms and analysts “struggle to account for private companies when they do risk assessments,” NASAA said. In addition, “regulators and legislators lack the basic information necessary to know if the private markets are operating in a fair, orderly and efficient manner.”
“State securities regulators are on the frontlines of making our securities markets safer, more efficient, and more inclusive. We welcome opportunities to engage and work with Congress and others in continuing our longstanding efforts to advance each of these important goals,” Claire McHenry, NASAA 2023 president-elect, said in a statement.