SEC Risk Fin Director Wants Public Input About Investor Protection-Related Costs and Benefits

The Securities and Exchange Commission’s Division of Risk, Strategy and Financial Innovation’s director Craig Lewis wants members of the public to be more proactive about offering information regarding investor-protection related benefits and costs during the rulemaking process. At the Pennsylvania Association of Public Employee Retirement Systems’s spring forum, Lewis said that it would help the regulator if it was given if not quantitative data, then qualitative, descriptive, and thorough information so it could better comprehend the possible effect a rule might have on investor protection.

According to the Commission’s recently published guidance on how it performs economic analysis to support rulemaking, there are four basic elements, including:

1) Identifying the justification for why there should be a rulemaking.
2) Defining the baseline to use to measure the economic impact of the regulatory action (meaning, what is the world like now sans the regulation?)
3) Determining what (if any) reasonable regulatory approaches there might be.
4) Evaluating the economic impact of the proposed rule, as well as that of the principal regulatory options.

Lewis, who was clear that his views and opinions were his own and not necessarily that of the Commission said that Risk Fin’s economic analysis is key to the agency’s mission to protect investors. One example he pointed to was the SEC’s recent request for information on a uniform fiduciary duty for broker-dealers and investment advisers that give personalized retail investment advice. He said that data submitted was able to identify the need for a regulatory action for investor protection, which makes the latter reason for there to be a rulemaking.

Commenting on this story, Shepherd Smith Edwards and Kantas, LTD, LLP Founder William Shepherd said: “After the stock market crash of 1929, Congress passed laws to regulate securities offerings, to regulate securities markets and to create the SEC. The US securities markets soon became the gold standard for the world. Investors worldwide relied on the transparency and protection of our markets which gave them greater confidence to invest here than elsewhere in the world. The “costs” of regulation to the securities industry were far outweighed by the “benefits” to everyone, including Wall Street. Now, everyone, including financial types, doesn’t like rules and regulations that constrain us. Yet, the dawn of the 21st century hatched a new era of deregulation, including the U.S. financial industry. The foxes of Wall Street were unleashed upon the henhouse and the results are history. Hens (investors) were eaten worldwide, and a financial collapse ensued, which may or may not have been averted. Meanwhile, new efforts to “re-regulate” the U.S. financial markets have been met with expected resistance from those adverse to return of the rules. The sad part is that, instead of welcoming their new clout (or bite) some of the “fox hounds” at the SEC are more concerned about the welfare of the foxes than the hens.”

If you worry that you may have been the victim of securities fraud, do not hesitate to contact SSEK right away to ask for your free case evaluation.

Investor Protection Through Economic Analysis, by Craig Lewis, SEC, May 23, 2013

Division of Economic and Risk Analysis, SEC

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