Those of us involved in the securities industry are painfully aware of the recent failures of the SEC and other regulatory authorities over the past year. Unfortunately, such failures and bad economic times often create a sense by regulators that new regulations are needed to combat the latest failure.

This is untrue. Our securities statutes were broadly written and are broadly interpreted to ensure that they will address whatever new schemes or frauds come along. Certainly we have had issues recently, but those issues are a result of a lack of enforcement of existing rules, not the failure to have the proper rules in the first place.

The problem with new rules and regulations is that they are often adopted in a hurried fashion, and in response to public outcry from people who do not understand that the offensive conduct is already addressed by our wide array of existing laws. Moreover, new rules often have unintended consequences. Sarbanes-Oxley was one such example. The financial impact of that act, which created a host of new regulations, is still being felt in our capital markets, seven years later, as companies delist their securities and seek out the capital markets in other countries.

To the Commission's credit, it has not rushed to create new regulations. There have been proposals to tinker with custody of customer fund rules by investment advisors, studies to examine risks in the financial markets, new seminars for compliance officers and roundtables on various topics, but no new rules or regulations.

The trend continued in June, when the Commission announced the formation of an Investor Advisory Committee, which it says will give investors a greater voice in its work. According to the SEC, the committee will advise on matters of concern to investors, provide the Commission with investors' perspectives on regulatory issues and serve as a source of information and recommendations.

While such a committee is better than new regulations, there is still a question of purpose. Does the SEC really believe that a group of investors has the skill or knowledge to advise the world's biggest securities regulator? Does the SEC need more input to serve as the primary regulator of the securities industry and markets?

The reality is that this is a "feel good" committee. It will enable the Commission to say it is concerned about regular investors and their views. But these "investors" on the committee are hardly regular investors. Of the 15 members on the committee, plus its two co-chairmen, at least six of them are presidents or chief executive officers of mutual fund companies. These are not exactly the people who will bring an everyman perspective.

One member is an executive from Charles Schwab, another is a law professor and another is an attorney from the AFL-CIO. To be fair, there are a few individuals on this committee who represent investor organizations, but this isn't truly a group comprised of investors.

Other committee members include Fred Johnson, the Colorado Securities Commissioner and head of NASAA, the organization of state securities regulators, as an "ex-officio participant." Joseph is a well known and respected securities regulator; certainly not the typical investor. While he is concerned about the protection of investors, in that regard he has the same interest as every securities regulator, including the Commission itself.

There is no doubt that the SEC needs help in achieving its regulatory goals and mandate. While this latest announcement may be an indication of a new outreach attempt by the SEC, it appears that this is simply window dressing, designed to appease the masses without having any real impact.

 

Mark Astarita is a partner at law firm Beam & Astarita, LLC. His email is astarita@beamlaw.