In testimony submitted to the House Financial Services Committee (“Committee”), North American Securities Administrators Association (“NASAA”) President Mike Rothman argued that the updated Financial CHOICE Act should not be passed in its current form. Mr. Rothman objected to bill provisions related to enforcement and regulatory authority, capital formation, and investor protection.
At a hearing before the Committee, Chair Jeb Hensarling (R-TX) introduced the Financial CHOICE Act of 2017. As previously discussed, this bill is an update of the CHOICE Act of 2016 (see the Committee’s summary of changes) and represents a major overhaul of the current financial services regulatory regime including a partial repeal of Dodd-Frank.
Mr. Rothman testified that the proposed Financial CHOICE Act of 2017 would weaken important reforms and protections, undermine regulators’ ability to enforce financial laws, and “dramatically change regulatory policies in the wrong direction.” He argued that state securities regulators are concerned the bill would unnecessarily expose investors and markets to significant new risks, and replace efficient protections with ineffective measures:
“By attempting to eviscerate so many critically important reforms – weakened oversight of private securities markets and reforms; watered down provisions intended to expand fiduciary obligations to investment professionals; lowered standards for securities sold to the investing public; diluted rules that keep “bad actors” out of our securities markets, among many others – the legislation blithely aims to sweep away in one stroke scores of essential protections and modernizations to our financial regulatory architecture. . . .”
Specifically, Mr. Rothman noted objection to Section 391 of the proposed legislation. He argued that NASAA objects to a mandate governing the coordination of state and federal enforcement actions because it would hamper the voluntary state-federal collaborative framework that is in place already.
Lofchie Comment: CHOICE Act Section 391 requires that various federal agencies (which are enumerated in Section 311 of the bill, but essentially includes the major U.S. financial regulators) better coordinate among themselves which agency should be the lead in any regulatory action where numerous agencies are involved. It does not, by its terms, impose any obligations on state regulators; it merely requires that the federal government act as a unified entity (which would seem entirely sensible, would conserve the government’s resources, and would reduce the nightmare scenario of a business dealing with multiple regulators in regard to any one single issue). The Section does not require the states to coordinate either among themselves or with the federal government, although it would be good if they were to do so.