Cooperation before Consolidation in Investor Protection

Article by Kenneth M. Rosen

The aftermath of the financial crisis yielded much soul searching on how regulatory structures should evolve to prevent future crises and how to protect investors and consumers. Useful discussion of changes to the regulatory system must include acknowledgment of that system's current organizational state of affairs and its propriety.

Students of regulation related to the protection of investors and consumers of financial products will be well aware that in the United States, a variety of administrative agencies and government actors are involved in the regulatory process meant to provide such protection. For instance, at the federal level, the United States Securities and Exchange Commission (SEC) is tasked with protecting investors in financial products defined as securities through a variety of mechanisms, including oversight of markets and the intermediaries offering these products. Traditionally, the United States Commodity Futures Trading Commission (CFTC) took the lead on issues related to products falling within the realm of a futures contract. The United States Department of the Treasury (Treasury), the Board of Governors of the Federal Reserve System (Fed), and associated entities have focused on banking products. Of course, state-level regulators, such as state securities commissions or providers of state banking charters, can be involved in such processes as well. Indeed, for some products, state regulators may be characterized as the leaders on regulatory schemes, such as those for insurance products.

This U.S. organizational approach certainly is not the only one available. Other nations have sought to unify regulatory authority over a wider array of financial products and services in more centralized bodies, such as financial services authorities. Moreover, the increasingly globalized nature of financial products and services, with even retail consumers sometimes participating in foreign markets, raises the question of whether such unified regulators should perhaps be extended to the vesting of regulatory authority in a global, unified regulatory body with control of purchaser-related issues for a wide array of products.

This Symposium creatively and usefully brings together scholars from the capital markets and consumer financial products regulatory worlds to contemplate such possible convergence and consolidation. This is both innovative and necessary because scholars in those worlds face their own unique product end-user issues with approaches that might vary from one world to another. More provocatively, the Symposium organizers suggest that convergence of regulators and approaches from those different worlds may have perils in addition to benefits. Accordingly, as tasked by the Symposium's structure, my contribution focuses on a securities law perspective on the convergence issue and, more specifically, on some possible perils. In introducing such perils, while focusing on the convergence issues' overlay with the securities laws, I particularly illustrate issues surrounding and faced by U.S. securities laws and regulators. However, I also hope at least to raise some possible issues about international convergence as well, in keeping with the Tulane Law Review's strong tradition of providing insights from comparative and international law. Accordingly, in Part II, I begin by identifying some practical difficulties raised by consolidation of regulatory agencies. While consolidation might offer some benefits, as a baseline for analysis, it is useful to contemplate the likelihood and costs of being able to accomplish consolidation in the near term. In Part III, I place these concerns in the contemporary context of crisis-driven regulatory changes. This context may help explain why some find consolidation particularly attractive now as a matter of political utility, which does not necessarily correspond to legal efficacy. This Part views potential consolidation as a candidate for ill-advised crisis regulation, which is problematic for the reasons explored in my prior scholarship. Of course, even if consolidation is difficult and problematic, one also must ask whether, absent consolidation, it is even possible for the existing regulatory agencies to work together to solve contemporary problems. Accordingly, in Part IV, I provide a case study of how multiple regulators worked together, absent consolidation, to achieve investor protection. More specifically, I explore the efforts of multiple government regulators related to the introduction of single-stock futures and related investor protections. With knowledge of the possibility of cooperation addressing investor protection concerns, in Part V, I suggest possible cooperative efforts that might be utilized prospectively and further institutionalized to help address future concerns related to protecting investors.

About the Author

Associate Professor, The University of Alabama School of Law


90 Tul. L. Rev. 1211 (2016)