A top official at the U.S. Securities and Exchange Commission has suggested that there may be differences in the way banks, securities firms and insurers should be regulated.

Ethiopis Tafara, director of the Office of International Affairs at the SEC, has presented that view in a speech delivered in Chicago at a meeting organized by the American Bar Association, Chicago.

Tafara, who emphasized that he was expressing his own, personal thoughts, talked about the need to create a new financial services regulatory framework that will address the issue of systemic risk and prevent regulatory arbitrage.

“Many products, actors and markets have the same underlying economic characteristics, motivations or clientele, yet are regulated based on connection to an institution that can be described as having either a securities, banking or insurance function,” Tafara said, according to a written version of his speech posted on the SEC website.

When the regulators have different rules, the market participants will search for the path of least regulatory resistance, Tafara said.

“By the same token, we need to be vigilant not to pursue uniform regulation for the sake of ease given that there are instances where the fundamental differences in the nature of securities, banking and insurance — and hence their regulation — are legitimate and indeed important,” Tafara said.

“A we consider regulatory reform, we should not lose sight of the differences between market regulation and the supervision of institutions,” Tafara said.

Insurance, banking and securities regulators all have an interest in enforcing the law and requiring the companies they oversee to have adequate capital levels, Tafara said.

“But there also are differences,” Tafara said. “For example, the inherent tension between ‘consumer protection’ and systemic stability often means that enforcement activities of insurance and banking regulators are negotiated and conducted more discretely. This happens because banking and insurance regulators are concerned that public enforcement activities will lead depositors or consumers to lose faith in the firm involved, possibly leading to a run on the bank or a dramatic reduction in the insurers’ ability to distribute risk as consumers leave. By contrast, securities regulators tend to have aggressive and public enforcement programs — with punishment meted out in the public square, as it were.”

In addition to be interested in solvency, insurers are interested in consumer protection, Tafara said.

That emphasis on both concerns “makes perfect sense, since the worst time to learn that an insurer does not intend to live up to its promises is when an insurance claim is made,” Tafara said.

A complete copy of the written version of the speech is available here.