The Treasury's Blueprint for financial services regulatory restructuring: An unstable foundation for investor protection?

This paper outlines why state securities regulators believe that the Blueprint for a Modernized Financial Regulatory Structure, released earlier this year by the US Department of the Treasury, severely limits the essential role of state securities regulators in protecting Main Street investors from investment fraud. NASAA takes a position directly contrary to those who advocate substantive 'regulatory reform'. Arguments that our system of regulation imposes unnecessary 'burdens', creates 'impediments to capital formation', impairs 'the competitiveness of our markets', and represents 'a disservice to investor' are simply and demonstrably false, premised on bad data, and follow unsound logic. NASAA also disputes the contention that alternative models of regulation have proven to be either more efficient or more effective. The community of state securities regulators has always been willing to discuss regulatory reforms that strike the appropriate balance between regulatory efficiency and protections for all investors. We favour prudent changes where necessary to preserve or enhance the health of our markets, but regulatory reform, as the concept is currently framed, does neither. Financial innovation has outpaced, perhaps outmanoeuvred, financial regulation. However, regulatory change should not come at the expense of investor protection, which state securities regulators have effectively provided for consumers .for nearly 100 years. The paper concludes by urging policymakers considering taking action on the Treasury's blueprint not to lose sight of the regulator's primary function: to protect investors and capital. Ultimately, any "reform' should, as a matter of first principle, seek to maintain the critical balance required to protect investors and capital alike. [ABSTRACT FROM AUTHOR]