Despite the enactment of the National Securities Market Improvement Act (“NSMIA”) in 1996, which aimed to create more uniform regulation of securities at the federal level, recent developments in Missouri suggest this uniformity may be under threat, which can present challenges complying with myriad state laws and regulations governing the offer and sale of municipal bonds.
Although NSMIA limits the power of individual states to impose their own regulations on certain securities activities and therefore preempts many state registration and offering document requirements applicable to securities, Missouri has enacted two regulations that may conflict with this preemption: 15 C.S.R. § 30.51.170(3), which mandates that broker-dealers keep certain records, and 15 C.S.R. § 30-51.172(3), which sets standards for investment advisers (collectively, the “Missouri Regulations”).
The Missouri Regulations are currently being challenged in a federal case, Securities Industry and Financial Markets Association v. Ashcroft. The plaintiff in Ashcroft argues that NSMIA preempts the Missouri Regulations. However, the North American Securities Administrators Association (“NASAA”) has filed an amicus brief on behalf of the State of Missouri, asserting that the Missouri Regulations are not preempted by NSMIA. NASAA argues that NSMIA’s savings clauses preserve state authority to regulate fraud, deceit, and unlawful conduct related to securities transactions. As such, NASAA contends the Missouri Regulations are safeguarded from the plaintiff’s NSMIA preemption challenge.
If the court upholds the Missouri Regulations, it could signify a shift in the preemption of securities regulation, with more states potentially creating and enforcing their own regulations. This could gradually undermine NSMIA and further complicate the compliance landscape for broker-dealers and investment advisers operating nationwide.
As states such as Missouri test the boundaries of NSMIA preemption, the implications of a fragmented regulatory landscape in the securities arena must be considered. Given that Blue Sky laws are often cloudier than their name implies, navigating compliance with these regulations is easier with an experienced advisor.
