NASAA Commends Presidential Directive on Preemption
In a letter this week to President Obama, the North American Securities Administrators Association (NASAA) praised the chief executive's recent directive setting limits on regulatory preemption by federal agencies. NASAA believes that the President's memorandum of May 20, 2009 sends a strong signal concerning the effectiveness of the state-federal regulatory partnership. NASAA also praised the President's recognition that the states have often been more aggressive than the national government in matters of investor protection.
NASAA noted that, despite the century-long track record of state securities regulators in investigating and uncovering investment fraud, there has been a concerted effort on the part of Congress to preempt state regulation of the financial markets. And as recognized by the President's directive, federal agencies have compounded the problem by extending the scope of preemption even beyond Congressionally-intended boundaries. For example, NASAA observed that the Office of Thrift Supervision (OTS) has taken the position that even independent agents used by thrift institutions to market mortgages or certificates of deposit are immune from the licensing requirements of state securities laws.
Asserting the importance of not only reining in, but also reversing, instances of state law preemption, NASAA also called upon the President to ensure that state regulators are adequately represented in any regulatory reforms fashioned by the Administration and Congress. Accordingly, NASAA reiterated its endorsement of the creation of a Systemic Risk Council.
Comprised of representatives from all federal and state regulators in securities, banking, and insurance, the proposed Council would be assigned the responsibility of monitoring and limiting the accumulation of risk in the financial markets. NASAA believes that the Council approach is essential to the success of any attempt to control systemic risk because it would take advantage of the states' unique strengths in providing ground-level detection through examinations of industry participants and complaints from investors.