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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Remarks at SEC Speaks


Commissioner Kathleen L. Casey

U.S. Securities and Exchange Commission

Washington, D.C.
February 5, 2010

Thank you. I am pleased to be at the Ronald Reagan building this morning, and have good news for the hearty souls in attendance as we await another winter snowstorm: I will be very brief.

Much has been written about the SEC’s performance in meeting its important mission of investor protection, and promoting fair and efficient markets and capital formation.

Like other financial market regulators, we have been repeatedly tested throughout the financial crisis and subjected to intense scrutiny.

Because we hold such an important public trust, this scrutiny is deserved and to be expected. As we have seen, it can be a fragile trust and we must constantly strive to maintain it. This morning, I’d like to highlight a few guiding regulatory principles that I believe position the agency well in pursuit of this goal, in any political or market environment.

I have had occasion to reference some of them in the past in the context of specific rulemakings, but at a time when there is a tremendous amount of regulatory change being undertaken or contemplated, I believe it is important to restate and reaffirm these principles as they should also help the public hold us accountable and measure our effectiveness in meeting our responsibilities to investors and the capital markets.

So, without any further ado, here are my Top 10 regulatory principles. Many are interrelated, and in the aggregate, these principles reflect my overall philosophy of financial regulation.

Above all else, regulators should act with humility. As I have stated in the past, sometimes we don’t know what we don’t know, and if we rush to regulate without a complete understanding of the extent to which complex and dynamic market activities may be interrelated, the specter of unintended consequences looms large.

That leads us to the second regulatory principle that guides my analysis of new regulations: regulators must always consider the potential for unintended consequences. Those consequences may create or represent new, even greater, problems.

Number Three: Market-based solutions are generally preferable to new regulations. In my view, the Commission should regulate only when there is a demonstrated market failure and the market has proved incapable of solving the problem. Indeed, those promoting new regulations should be required to show that the regulations are necessary, not the other way around. A corollary to this is to ensure that when we do seek to regulate, our actions promote and do not diminish market discipline.

Number Four: The purpose of any new regulation must be clearly defined. What exactly are we trying to achieve? If we are not clear about the intended objective, then our response is likely to be off the mark.

Number Five: Empirical evidence should guide regulatory decisions.  That seems like an obvious principle, but to those following our adventures into legitimate short selling activities, it is not one the Commission has always followed.

Number Six: The benefits of any regulation must exceed the costs. If they do not, we should not go forward. This is not merely a sound regulatory principle; it also is a statutory mandate for the Commission.

I would also add that any costs and impact should be considered in the full context of the entire regulatory program. Marginal costs do matter. Further, in considering the efficacy of our actions, an understanding of how any new changes interact with other rules and requirements beyond our purview also is important to fully appreciate how markets and market participants are likely to react: for example, where relevant, the interaction of capital requirements and accounting treatment.

Number Seven: Regulators should, to the greatest extent possible, provide certainty to market participants. The rules must be clear, and the inspection and enforcement regimes must be rational and consistently applied. Regulatory uncertainty can be a primary impediment to market recovery and investor confidence.

Number Eight: The opportunity costs of pursuing a particular regulation must be carefully considered. Every regulatory agency has only so much staff and only so much money. Would investors' interests be better served if the SEC's limited resources were applied to other priorities? The recent interpretive release on global warming and climate risk disclosure clearly raises this question.

Number Nine: Regulators should act in the interests of all investors and the capital markets as a whole, and resist any pressures to pursue narrow interests at the expense of these broader constituencies. Our rules often apply broadly to all public companies, all broker dealers, all investment advisors, and so on. Broad brush reforms not fairly representative of potential harms or threats posed should be carefully scrutinized.

Number Ten: Regulators should be sensitive to the potential of fighting the last war, and thereby failing to identify any problems looming on the horizon. Of course, this is a constant challenge not unique to the SEC. But it is particularly relevant to gauging whether markets have already self-corrected or are in the process of self-correcting because markets almost always respond faster and more efficiently than government regulation.

Federal laws and the judiciary play important roles in ensuring that many of these principles are followed. Indeed, when we fail to adhere to them, we are often reminded by the courts, and that has happened, regrettably, with increasing frequency in recent years.

The Commission’s actions across a wide range of issues — market structure, short selling, credit rating agencies, proxy access, securitization, and money market funds, to name just a few — will continue to be judged according to these principles. I am confident that we are more likely to earn and maintain the public’s trust if we closely adhere to them.

Thank you again for the opportunity to be with you this morning. Safe travels today.



Modified: 04/30/2010