This month, Arkansas Securities Commissioner A. Heath Abshure wraps up his one-year term as president of the North American Securities Administrators Association. He spoke with Associate Editor Mason Braswell about what he accomplished, what is left on the table and the next steps for the organization, which includes regulators from the United States, Canada and Mexico.
1. What's the role of state securities regulators?
Expanding the role of state securities regulators is a big focus. Right now, the only jurisdiction that is truly our own is state-registered investment advisors. We share oversight of broker-dealers with the SEC and FINRA. We want to prove to the industry and law makers that state securities regulators are the most effective, efficient and appropriate regulator in a number of different areas like small offerings, small RIAs and small broker-dealers. The SEC is charged with being the primary regulator of public offerings, all broker-dealers, the markets, as well as the small one-owner business raising $500,000. The identities and needs of those groups is so drastically different that one regulator can't be expected to be a reasonable regulator for all of those. In the past year, the 'IA switch,' as it's known, gave us more authority. Advisors with between $25 million to $100 million in assets were switched back to state jurisdiction from the SEC. It was probably the biggest administrative move that I can remember, and it was very successful. The states moved in as soon as possible to look at those new advisors who renewed state registration. Many had never been subject to regulatory review at all. Our focus was not to bring a bunch of fines or cases but to help those companies move over to a state system of regulation. Then we came in with the compliance exam to identify problems that needed to be corrected.
2. What were other major focuses?
I wanted to change our historical approach to federal legislation. In the past, NASAA has been rather defensive. We never really pushed particular bills or initiated talks on a particular topic. We waited until a bill was filed, and then we'd file a reaction. More often than not, you end up finding a middle ground, which you're inevitably unhappy with. I wanted NASAA to get much more aggressive in connection with bills at the federal level, and we did that with Congressman Keith Ellison's bill, which deals with mandatory pre-dispute arbitration agreements and other limits on customers' ability to choose avenues of recourse. We're active right now in encouraging delegations to sign on as co-sponsors, and we have a lot of hope for this bill. It's going to be tough with the current makeup of congress. But we got one filed, and it's more fun to be on the offensive.
3. What would the bill accomplish?
It would not prohibit arbitration if a customer wanted to go to arbitration. It would prohibit a binding contract to decide the pre-dispute resolution forum before cause of action. It would also expressly prohibit class-action waivers. The JOBS Act, for instance, actively encourages smaller investments through crowd funding. A typical Regulation D stock offering is around $60,000. If the client had a mandatory arbitration agreement and invested $30,000, they're not going to find an attorney willing to take a $30,000 claim to arbitration. The fees will be at least $10,000. The only way that claim has validity or a client can recover is through a properly formed class action. I'm not saying smaller investors can't go to arbitration, but it's extremely unfair that a broker-dealer can force a client into arbitration when there's really no idea what the size of the claim may be.
4. What's your role in the fiduciary standard debate?
We've long supported a uniform fiduciary standard and don't think it should be watered down when applied to both broker-dealers and investment advisors. Many brokers say that customers don't understand the difference between the two standards of care, but what they're really saying is that advisors sell their products or advice in a way that convinces the investor that they're absolutely acting in the clients' best interest. Broker-dealers also say it will increase costs. There are certain factual scenarios at a broker-dealer that might require a tweaking of the fiduciary standard, but it's not so difficult that we can't draft rules that are appropriate.
5. What's next for you?
It's really hard to accomplish a platform in just one year. So hopefully the next NASAA president will be convinced that what I started is an appropriate way to keep going. In the event that she doesn't think so, I'll back her up. I stand ready whenever NASAA needs me, and I continue to be an advocate here in Arkansas in my role as Arkansas Securities Commissioner.
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