National Press Club

Congress Shouldn't Weaken Investor Protection Reforms, Securities Official Says

December 6, 2009 | By Tejinder Singh |

Congress gets push to resist pressure to weaken investor protection reforms

Texas securities commissioner Denise Voigt Crawford criticized parts of the financial reform package under consideration in the House, particularly a Republican-sponsored provision that would place many investment advisory firms under the regulation of the Financial Industry Regulatory Authority.

At a Dec. 4 Newsmaker, Crawford who is also the president of the North American Securities Administrators Association, said the possibility of FINRA oversight of advisory firms “causes us great concern.”

“FINRA is a private organization that is accountable to its own members,” she said.

Crawford voiced support for the “intelligent and comprehensive approach to regulatory reform offered by the Restoring American Financial Stability Discussion Draft,” presented by Senate Banking Committee Chairman Christopher Dodd (D-CT) and the “Investor Protection Act of 2009," which was reported by the House Financial Services Committee.

“Everybody is saying that they believe in one standard, and everybody is saying that they believe that it should be a fiduciary standard,” Crawford said.

“If you listen to Mary Schapiro speak, she'll say there needs to be one standard; it needs to be fiduciary. But she never says that it should be the '40 Act standard. That is huge, and it's very worrisome to us — because anything else is whatever people decide it's going to be,” he said, referring to the chairwoman of the Securities and Exchange Commission.

Draft legislation in the Senate would require brokers to come under the Investment Advisers Act and traditional fiduciary standards. “The Senate approach preserves the … authentic fiduciary standard,” Crawford said.

Asked to comment on prospects of a platform for the states to co-operate, Crawford said she signed a rare NASAA memorandum of understanding Dec. 2 that will allow states to work with each other to regulate the additional advisory firms.

All states are expected to sign onto the MOU if the legislation is enacted. She said new bills would raise the asset threshold to $100 million from the present $25 million for advisory firms to be regulated by the SEC.

Asked whether the SEC has improved its performance over the past year, Crawford said, “The jury is still out on whether the culture at the SEC is going to change.”

"I don't want this to be a situation where top management at the SEC does a smoke screen," Crawford said, adding that SEC staff barely interact with defrauded investors.

“The folks that are employed at the commission, most of the time are looking for a job on Wall Street,” Crawford said. “It makes it very difficult for them to take a hard line against their future employer who's sitting across the table.”

“Powerful interests in the financial services industry have aligned to delay, derail and distort the regulatory changes to the status quo that are necessary to strengthen investor protection. But business as usual doesn’t work anymore; nor does regulation as usual," Crawford said.

“Years of deregulation at the federal level have left a legacy of failure to properly scrutinize the financial industry, as we most recently saw when the now infamous Madoff Ponzi scheme exposed major regulatory gaps at the federal level. While the recent financial crisis was the result of many industry and regulatory failures, a failure of state securities regulation was not one of them,” Crawford said.

“While high times may have returned to Wall Street, hard times persist on Main Street. Congress must not squander this opportunity to provide meaningful investor protection reforms," she said. “Investors remain outraged as they continue to suffer the consequences of the unbridled risk-taking and large-scale financial fraud that shook through financial markets last year.”