Government reform: Oversight of financial industries

The idea of creating a single state department to regulate all financial industries finds one department eager to jettison some duties and a state official guarding her turf.

The Missouri State Government Review Commission has proposed combining oversight of banking, credit unions, insurance and security brokers into one agency. Currently, those duties are split between the Department of Economic Development, the Department of Insurance and the secretary of state's office.

For many with a stake in the issue, the strongest feelings are directed toward getting a more focused economic development department. And for some of those regulated by the agencies that would be combined, the strongest feeling is indifference as long as there are no upheavals in the way things are done.

For people focusing on job creation in Missouri, the move makes sense because it relieves the Department of Economic Development of its regulatory duties, said Greg Steinhoff, director of the department.

The best argument in favor of the move, commission member John Fox Arnold of St. Louis said, is that recent federal laws loosened or eliminated the barriers that kept those industries from overlapping. The recent changes swept away Depression-era rules enacted in the wake of the stock market crash of 1929.

Whether the change will occur, however, depends on if Gov. Matt Blunt agrees to diminish an office held at one time both by himself and his father, U.S. House Majority Leader Roy Blunt. And whether the traditional antagonisms between the insurance and banking industries can be smoothed over.

The recommendation was approved 11-7 by the commission, the closest vote on any of the 84 proposals. The proposal would also place the Missouri Public Service Commission, which regulates utilities, into the new department along with agencies in charge of licensing professionals such as doctors, barbers and tattoo artists.

Objections raised by current Secretary of State Robin Carnahan was one reason for the close vote. The change would take away securities regulation, a function the office has had for 80 years.

"There is no guarantee that combining these functions into one big new agency would work better or serve consumers better," Carnahan said.

Arnold disagrees. Putting the regulation under a single umbrella agency would allow easier resolution of disputes over turf, he said.

"It seems to me to make sense to have the regulation or oversight all in the same place rather than in different departments and not able to communicate with one another," Arnold said.

To take effect, the move would require action by the Missouri Legislature. And, if Carnahan is correct, a constitutional change as well.

The constitutional provision putting corporations under the secretary of state is vague. The office supervises corporate records and documents and has "such duties in relation thereto" that are assigned by the legislature.

The regulatory duties of the secretary of state are just a small piece of securities oversight, Arnold said. Most of the watchdog functions are performed at the federal level, he noted.

Securities are a lot more complicated than when the regulatory duties were first assigned to the office, Arnold said. In addition to stocks and bonds, securities include certificates of deposit, futures contracts on stock market indexes and myriad other instruments.

Brokerage companies own banks, consumer banks sell stocks and insurance companies sell securities, he said. "It just seems to me we ought to be as coordinated as the activities we supervise," Arnold said.

Carnahan questions whether there is as much overlap as Arnold contends. And, she said, a suggestion for change should be able to show that the new arrangement would either fix a problem or make government more efficient. The proposal doesn't do either, she said.

"I don't see the common sense for change for the sake of change," she said. "There is an old saying, if it ain't broke don't fix it. That certainly applies here."

If the proposal was changed to leave her in charge of securities regulation, Carnahan said, she would not oppose it. "My constitutional duty is to protect investors, and that is what I am going to stay focused on. How the governor wants to reorganize agencies under his control is up to him."

Carnahan's statements show the controversy is over turf, not competence, said Harry Gallagher, lobbyist for the financial services industry. Gallagher said he doesn't care what agency the regulators call home as long as there are competent people and stability in the laws.

"It is a territory squabble," Gallagher said. "I don't think any government official wants to give up any authority. You grow it if you can."

The questions of authority and turf don't end with the securities division of the Secretary of State's office. The Department of Insurance, which would see itself transformed under the proposal, was created because lawmakers felt insurance regulation was overlooked as part of a larger department.

"Funding was an issue and accreditation was an issue," said Calvin Call, director of the Missouri Insurance Coalition, the industry lobbying arm.

The coalition hasn't taken a position on the proposal, Call said. Insurers' biggest concern with the proposal is who will lead the department.

"Philosophically, I am not sure it adds up to anything," Call said. "It seems like a step backward to be merged into a lot of other financial areas. But the banks carry a lot of weight politically."

The banking lobby believes the change will make several improvements in government. "One of the focuses was trying to get the Department of Economic Development more focused on its primary mission," said Craig Overfelt of the Missouri Bankers Association. "And it seemed to us to make sense to put all the financial entities in one department."

The regulatory functions of the economic development agency can be a distraction, Steinhoff said. "In this day and age, when states have gotten extremely resourceful and competitive in trying to grow their economies, we've got to be focused."

While trying to attract investment, the department has divisions that regulate banking. And 40 separate boards regulate professions, Steinhoff noted.

"It is hard to make sure you are doing everything you can to make jobs when you get a call from a state senator about someone who needs a tattoo license by tomorrow and you've got to go make that happen," he said.

Among the 50 states, there is no set model for regulating financial services. According to the commission's report justifying the move, 13 states combine securities, banking and insurance oversight; seven combine securities and banking and two combine insurance and securities, the report states.

The proposal makes organizational sense, Arnold said, but requires strong leadership to make it work. "It will only be effective if the men and women involved actually believe that with this coordination they can better serve the men and women of our state."

rkeller@semissourian.com

335-6611, extension 126