2023 NASAA President Claire McHenry

Presidential Address to NASAA Membership
September 12, 2023
NASAA 2023 Fall Annual Meeting
San Diego, California
As prepared for delivery

Thank you, Andrew, for your kind introduction. And thank you for your service and leadership this year as NASAA President.

We are approaching the end of our conference and as we do so, I want to thank the amazing team at the California Department of Financial Protection and Innovation for planning this year’s conference – especially Commissioner Cloey Hewlett and this year’s conference chair, Bal Kazla. Thank you also to NASAA’s Corporate office for your efforts to support this event and our members.

Please join me in a round of applause in thanking our hosts at the DFPI and the NASAA team.

Before I begin my remarks, I would like to welcome Director Kelly Lammers and my colleague, Mike Fabry from the Nebraska Department of Banking and Finance. I’m also happy to be joined today by brother Jack. Thank you for coming and your support.

I started my career in state securities regulation over 20 years ago as a legal intern with the D.C. Securities Bureau. At the time, I was told about NASAA. Of course, it came with the usual joke about space agencies. I was also told about how the association and its members were a great resource and could help me if I needed it. I didn’t appreciate just how impactful that message would be. My fellow NASAA members have been sounding boards, mentors, and a collective support system.

Through my involvement with NASAA I have been afforded more opportunities than I ever expected. I never would have thought when I was a first-year law student that I would have the privilege and honor to stand here today as NASAA president. I am humbled by the trust of the membership and energized by the opportunities that lie ahead.

Within NASAA you’ll find a deep bench of talented, capable, generous people committed to our investor protection mission. Accomplishing our work is more than any one person can do and I am pleased to introduce NASAA’s 2023-2024 leadership team. As I call your name, please stand, and remain standing. Please hold your applause until I have announced everyone.

First, the NASAA Board of Directors:

• President-Elect Leslie Van Buskirk of the Wisconsin Securities Division
• Past-President Andrew Hartnett of the Iowa Insurance Division
• Treasurer Tom Cotter of the Alberta Securities Commission
• Secretary Diane Young-Spitzer of the Massachusetts Securities Division
• Board members:
  • Marni Rock-Gibson of the Kentucky Department of Financial Institutions,
  • Andrea Seidt of the Ohio Securities Division,
  • Elizabeth Bowling of the Tennessee Securities Division, and
  • Stephen Bouchard of the DC Department of Insurance, Securities and Banking.

And subject to Board approval, I’d like to introduce NASAA’s Section Chairs:

• Broker Dealer Chair Jim Nix of the Illinois Securities Department
• Corporation Finance Co-Chairs Bill Beatty of the Washington Securities Division and Erin Houston of the Nevada Securities Division
• Enforcement Co-Chairs Amanda Senn of the Alabama Securities Commission and Brett Olin of the Montana Securities Department
• Investment Adviser Chair Alisa Goldberg of the Florida Office of Financial Regulation
• Investor Education Co-Chairs Jill Lazar of the Delaware Investor Protection Unit and Kelly Janes of the Wyoming Securities Division

Please join me in a round of applause for our NASAA leadership team.

Our conference theme focused on how our roles as regulators have evolved in large part due to the constantly changing nature of the capital markets and securities industry. I have a keen interest in how our laws and rules apply to new and emerging technologies. In recent years, we have seen dramatic changes spurred by innovation. By all accounts we can expect this pace of change to only accelerate in the coming years. But from the early days of my internship and throughout my time as a regulator, in the midst of all this change, there has been a single constant – investor protection.

Advances in technology have changed so much in our capital markets from the ways investors invest to how regulators regulate. Those advances have in turn led to both increased data collection and reliance on data. Whether its investors, industry, or regulators, we have all experienced how data is used to make decisions and impact behavior. At NASAA, we have engaged with fellow regulators and other stakeholders to learn more about these efforts. We are especially interested in learning how the use of new technologies could be beneficial for retail investors, while mindful of the risks and potential harm they can bring. We are also thinking about data strategies and initiatives that we can pursue that will be impactful for our members.

I could not talk about technology without covering digital assets. Once a novelty not so long ago, digital assets are now commonplace as more people than ever are using them to make trades, invest, and buy things. Today’s new, emerging technologies and digital assets offer innovative ways to invest and reach new markets. More and more, investors have come to rely on smartphones and apps to make investments and interact with financial professionals. But with these advances, we often see real and meaningful risks especially when these technologies and products intersect with large segments of the investing public.

With this expanded reach to new investors, new products and services must come with appropriate controls and backstops. You need look no further than NASAA’s annual enforcement surveys to see the increase in cases involving scams tied to digital assets or otherwise connected to the growing reliance on digital platforms. This has been especially the case in frauds targeting older investors. Sadly, this is not unique to state and provincial securities regulators.

According to the FBI’s 2021-2022 Elder Fraud Report, those victimized by scams using a form of cryptocurrency reported losses of over a billion dollars. Moreover, the report notes that the largest losses among victims over 60 were crypto-related investment scams.

I believe that there is a place for digital assets in our regulated markets. Exactly what that looks like and how that regulation develops is a matter of debate at the moment. At NASAA, though, we understand that for retail investors, these products and markets remain a very risky place. State regulators have been and will continue to be on the front lines of this issue. In the coming year we will explore ways to expand our ongoing communication and information sharing with our fellow regulators. And we will maintain active engagement with policy makers to ensure that states retain the tools necessary to protect investors and facilitate responsible capital formation and innovation.

Technology has also changed the ways in which firms surveil and monitor for compliance. I understand how important this is from my time conducting exams of registrants and supervising examiners. It turns out that you can never really stop being an examiner. I even have a coffee mug in my office that literally says, “I heart compliance.” I am confident that examiners and compliance professionals share my affinity for rule following. It’s this understanding of the importance of the role of supervision and compliance that has informed our comments to the SEC on FINRA’s pilot on remote supervision. We are encouraged that some of our suggestions have been incorporated into the most recent proposals. Should the SEC decide to approve the proposals, we look forward to engaging with our friends at FINRA as the pilot progresses.

The pace of change for all of us can be mind-boggling. But as I noted at the top of my remarks, the constant in all this change is investor protection.

In 2016, after a lot of discussion with my family, I took the opportunity to become the administrator in Nebraska and we moved halfway across the country. This was a big change for my family, and it definitely confused a lot of people who only knew me as a DC person. But I’m from Nebraska – born and raised – and it was a chance to come home.

It was also a chance to be closer to my parents. At the time, my mother was suffering from early on-set dementia. As a family, like many others, we were faced with making some difficult decisions. Luckily, we had a strong support network that included a broker who had worked with my family for decades. When my mom first started experiencing some of the challenges that come with cognitive decline, he would call me to ask if everything was ok with my mom. I explained that, no, it wasn’t, and to talk to my dad. As a probate attorney, my father had the knowledge and resources to get her the care she needed at the right time. As a family, we were all on the same page about what her care should be. And after my father passed, I was able to step in and to take over her care with the support of my brother.

As difficult as this time was for our family, this is actually a story of everything that went right. There were so many places where something could have gone wrong. And for so many families, it does go wrong, and people lose their life savings or worse. I thought of this when Nebraska enacted a law based on the NASAA model act to protect vulnerable adults. As many of you know, this act provides firms and regulators with additional tools to address financial exploitation. And I think about this when my office gets reports from firms in cases of suspected financial exploitation. I know work on this issue is far from done, but I can’t help but be so very proud of what we have accomplished – NASAA members, industry, and fellow regulators – to protect these investors.

In the coming year we will continue to focus on enhancing investor protection for older investors and, among other initiatives, urge federal lawmakers to pass legislation to establish a grant program to bolster efforts by state regulators to better protect seniors. As past chair of NASAA’s Federal Legislation Committee, I appreciate the support of the industry on this important legislation.

I am proud to be part of the work that NASAA members do every day to protect and educate investors, support businesses in our communities seeking to raise capital, and ensuring the integrity and efficiency of our capital markets that power our economy. Our closeness to the communities we serve provides us with a unique perspective and an understanding of their needs and concerns. In collaboration through NASAA, we are able to amplify our impact.

It is that perspective that informs the work of our sections, board committees, and project groups. For instance, last week we released a report summarizing the findings of a coordinated exam focused on Reg BI implementation by firms and sales practices involving certain products. We were pleased to see progress in the implementation of Reg BI, but more needs to be done. NASAA also released for public comment proposed revisions to our conduct rule for broker-dealers and agents that would incorporate amendments designed to heighten the conduct standard. The comment period will run for 90 days, and we look forward to feedback from stakeholders.

Our proximity to investors means that we’re often the first to receive reports when people are harmed and the first to act when needed. I have been so pleased with the way states have come together in recent months to take coordinated action to protect investors harmed by precious metals schemes, to stop unregistered and misleading cryptocurrency offerings, and to improve practices for retail investors at brokers. That work is so vital and must continue and I look forward to supporting the collaboration within NASAA that has been so beneficial to retail investors across the U.S.

I would like to thank the NASAA membership for your confidence in me to lead as president this year. I am excited to advance our strategic goals and look forward to the work that lies ahead. I welcome collaboration with fellow regulators on important issues impacting our securities markets. And I also appreciate the continuing dialog and engagement that we have with the securities industry.

I also want to take a few minutes to thank a few additional people. A big thank you to the entire team at the Nebraska Securities Bureau and the Department of Banking and Finance. The strength of our team and the support I receive back home is what allows me to be here today.

And last, and most importantly, thank you to my husband Daniel and my children, Maddy and Xander. Your love and support mean the world to me.

To my NASAA colleagues, thank you again for entrusting me with this opportunity. I look forward to working with all of you to build upon our legacy of investor protection. Thank you.