Treasury Review of the U.S. Regulatory Structure Is a "Timely and Welcome Undertaking," December 2007

Washington, DC, December 7, 2007 - Four basic principles should govern reforms to the U.S. regulatory structure to ensure that the nation's capital markets remain competitive, according to an ICI submission in response to a recent U.S. Treasury Department initiative. In comments to Treasury officials, ICI President & CEO Paul Schott Stevens noted that the initiative is "a timely and welcome undertaking and one of great significance to investment companies and their shareholders."

Background
The Treasury Department's review of the regulatory structure associated with financial institutions follows on several other high-level studies of the competitiveness of U.S. capital markets. It focuses on a number of topics, including overlapping state and federal regulation, ways to improve market discipline and consumer protection, "principles-based" regulation vs. "rules-based" regulation, and the strengths and weaknesses of having multiple regulators.

The ICI submission includes comments on the Treasury initiative from both the standpoint of issuers and investors. As issuers, investment companies seek broad and efficient markets in which to offer their securities without unnecessary regulatory impediments to innovation. As investors, they seek transparency of information and the effective protections of a regulatory system that ensures that their investments are, in fact, as described in the issuer's offering materials and that they receive the best price possible for their investments.

ICI Position
In its December 7 submission, ICI notes its concerns that the current U.S. regulatory structure is ill suited to keep pace with rapid changes and accelerating competitive challenges in a now-global marketplace. ICI believes four basic principles should govern reforms of the structure:

Coherent national regulation. Products and services offered and sold in a national market demand a coherent scheme of national regulation;
Innovation and adoption of global standards. If U.S. financial institutions are to succeed against global competitors, U.S. regulators must encourage and permit innovation and adopt global standards;
Reform to traditional approach. Our traditional regulatory organization and approach, especially for purposes of securities regulation, must be reformed in light of changed market realities; and
Embracing new technologies. For a broad array of purposes, U.S. regulators should embrace the efficiencies offered by revolutionary new technologies.

Although the submission elaborates on these principles with respect to the fund industry, ICI expressed confidence that these principles covered would prove applicable to the financial services industry at large.

A sole regulatory standard setter. The Securities and Exchange Commission should assert its authority under the National Securities Markets Improvements Act of 1996 and serve as the sole regulatory standard setter for registered investment companies.
A new form of investment company. The Administration and Congress, in consultation with the SEC and the investment company industry, should develop a new form of U.S. registered investment company with a tax treatment and structure appropriate for distribution in a global marketplace.
A more prudential regulatory model. The SEC should adopt a more prudential model of regulation and reorganize its structure to improve oversight and rulemaking.
More effective use of technology. The SEC and other regulators should make more effective use of information, communications, and other technology to achieve regulatory objectives and conduct oversight.

Treasury Review of the U.S. Regulatory Structure Is a "Timely and Welcome Undertaking"