In 118th Congress, NASAA

On January 12, 2023, The North American Securities Administrators Association (NASAA) announced its Federal Policy Agenda for the 118th Congress at a virtual event from Congressional staff and other policymakers. The blueprint “advocates for policy solutions that protect investors of all ages and backgrounds, promote responsible capital formation, and support inclusion and innovation in U.S. capital markets.”  Here are five key takeaways.

NASAA’s top villain of 2023 is “the private market.”  State securities regulators have never had much love for so-called “private” offering markets – NASAA has called them out year after year after year, for attracting “con artists, as well as individuals barred from the securities industry and others bent on stealing money,” and being “devoid of meaningful oversight and mechanisms to prevent abuse.” However, NASAA’s new agenda doubles down by characterizing “dark markets” not as mere vectors for fraud, but as central causes of a range of systematic problems and policy failures affecting the capital markets broadly, creating “challenges…for public and private companies alike,” and acting as “blindfolds” that make it difficult to “know if the next financial crisis is coming.”  As an antidote, NASAA calls for Congress to pass legislation that would amend Section 12(g) of the Exchange Act in a way that would force many large private issuers to register with the SEC.

The basic tenets that have guided NASAA’s advocacy remain intact. The first and second principles of NASAA’s 2023 policy blueprint are to “strengthen, not weaken, the government’s ability to prevent harm to investors,” and “to rebuild trust in our regulated capital markets by enhancing fair treatment and transparency.”  It is thus crystal clear, from the outset, that NASAA’s advocacy focus over the next two years will remain anchored to the values and assumptions that have historically characterized its advocacy. This, in part, may reflect the fact that NASAA’s current top elected leadership has extensive experience with NASAA’s federal advocacy.

NASAA really hopes Congress will not pass another JOBS Act.  NASAA is deeply concerned about the possibility that 118th Congress could seriously explore and even pass bipartisan “capital formation” legislation that would further preempts state securities authority. As such, its new policy agenda proactively attacks the narrative that undergird such legislation, which holds that deregulation of securities offerings can help business raise capital.  NASAA views this logic is backwards, arguing instead that markets don’t work well for anyone unless “investors receive fair treatment and all the necessary information to make an investment decision.”  This idea – that effective regulation optimizes capital formation and drives market growth – is vintage NASAA.

NASAA flatly opposes carveouts for crypto and considers them unnecessary.  NASAA’s policy agenda calls for Congress to “protect the securities regulatory framework from additional erosion” in the face of digital assets, and instead “use the elasticity [of the securities laws and precedents] to bring new practices, products, and professionals into the framework.”  This likely reflects a general skepticism by state regulators about the need for a new regulatory framework to accommodate digital assets, as well as specific opposition to aspects of bipartisan Senate Legislation authored by Senate Ag Chair Debbie Stabenow (D-Mich), and bipartisan stablecoin legislation being negotiated between HFSC Chair Patrick McHenry and Rep. Maxine Waters (D-CA).  Not surprisingly, this puts NASAA directly at odds with many of crypto’s top proponents in Congress, such as House Majority Whip Tom Emmer (R-MN) etc.  [For additional detail regarding NASAA’s thinking on the oversight of crypto and digital assets, readers should look at NASAA’s November 30, 2022 letter to the Senate Banking Committee on “Lessons from the FTX Bankruptcy.”]

NASAA criticizes SRO model, opposes “any new SROs.”  Somewhat unexpectedly, NASAA’s 2023 agenda prominently reiterates the organization’s historic wariness of SROs – “especially when said industry has demonstrated the inability to observe high standards of care and honor.”  It also restates previous NASAA criticisms of the SRO model, questioning the wisdom of “require[ing] the regulator to regulate its own members,” and pointing out that SROs “divert resources from public regulatory agencies.”  The reason NASAA would resurrect the discussion of SROs in 2023 are likely related to the potential role that SROs could play in any crypto regulatory framework.

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