Key Senator Questions Mutual Recognition; While McCreevy Sees Progress

Senate Securities Subcommittee Chair Jack Reed has asked the SEC to conduct an analysis of the issues before embarking on a system of mutual recognition, which he called a radical departure from current policy. At the same time, the European Commissioner for the Internal Market, Charlie McCreevy, recently reaffirmed his commitment to mutual recognition.

In remarks at the NASAA public policy seminar, Sen. Reed said that the mutual recognition concept would permit foreign exchanges and foreign broker-dealers to provide services and access to U.S. investors under an abbreviated registration system. This approach would depend on these entities being supervised in a foreign jurisdiction providing ``substantially comparable oversight’’ to that in the U.S.

The senator is particularly concerned by the timing of the SEC’s mutual recognition announcement, which comes in the midst of a major market crisis that has raised questions about the adequacy of U.S. regulatory oversight. He emphasized how critical it is that the SEC ensure that U.S. investors do not suffer any diminished protections under a system of mutual recognition. This is especially crucial given that no other market enjoys comparable participation by retail investors, he noted, or the benefits and responsibilities that such participation brings.

Senator Reed also emphasized that no other regulator is likely to share the SEC’s commitment to protecting U.S. investors, particularly if that protection comes at the expense of its domestic firms. Thus, he will send the Commission a letter requesting an analysis of issues before undertaking such a radical departure; and follow up with hearings on the topic.

In remarks to the European Parliament, Commissioner McCreevy said that if the regulators calibrate the conditions correctly it could lead to ``immense’’ rewards. Mutual recognition would also be a much needed show of confidence, he added, and would help to restore trust in the markets. In this spirit, the Commissioner praised as a very positive development the substantial progress made in the recent months on the US side, particularly, the SEC’s confirmation that it will work with the European Commission and CESR to develop a framework for mutual recognition.