(CN) - The insufficient number of lifeboats aboard the Titanic offered lessons in regulatory agility for both regulators and the regulated after the financial crisis, according to Financial Industry Regulatory Authority Executive Vice-President Thomas M. Selman.
     Speaking before the Insured Retirement Institute's Government, Legal and Regulatory Conference, Selman said "Regulation can't be static -it must evolve to reflect a world of constant change."
     Referring to an article by Chris Berg in the Wall Street Journal on the 100th anniversary of the sinking of the Titanic, in which Mr. Berg said regulatory failure was partly responsible for the loss of life aboard the Titanic, Selman said, "Mr. Berg's take on the disaster - that it's easy to put regulations in place but harder to keep them up to date - doesn't only apply to ocean liners. The Titanic is a case study for all of us here today."
     In his article, Berg argued that Titanic's owners declined to install the 48 lifeboats its builders said were needed for a ship its size because the British Board of Trade rules -which hadn't been updated in 20 years- didn't require them.
     Selman said the Titanic disaster showed that regulators needed to periodically review their rules, make sure they reflect changes in the products offered in the industry they are meant to protect and take into account the worst case scenario.
     He noted that the British Board of Trade hadn't updated its regulations on lifeboats for 20 years because it grew complacent with the increasing safety of cruise ships over that time and didn't realize that larger ships could sink faster as they filled up with water and that the old model of using lifeboats to ferry passengers from a sinking ship to a rescue ship wouldn't work if a ship sank quickly, as the Titanic did.
     Selman said that as a self-regulatory organization, FINRA was uniquely suited to be a nimble regulator because its members understood the products they offered, but that such knowledge was only useful if FINRA looked at its regulations before a crisis was imminent given the complexity of the process.
     Although FINRA uses an internal process to develop rules to govern its members, it lacks the authority to implement such rules until they are approved its regulatory supervisor, the Securities and Exchange Commission.
     Selman wondered if the financial crisis of 2008 wasn't the financial industry's Titanic hour because the fabulous growth and smooth sailing of the years leading up to the collapse left regulators scrambling afterwards to catch-up with changes in the industry.
     Selman stressed that the financial service providers needed to reflect on the lessons of the Titanic for themselves as well. He urged them not to become complacent, waiting for regulators to act when they should put customer safety first.
     "Don't become too dependent upon us, or the SEC, when you manage your risks. The managing director of the shipyard where the Titanic was built testified that he did not install extra lifeboats, but he did put the plans together in case the Board of Trade required more. But the Board never required more," Selman said.
     He noted that Berg made the case that the enormous loss of life on the Titanic was partially due to inertia and complacency.
     "You must work every day to resist the common temptation of regulated firms - to allow an innovative program of risk management to deteriorate into a rote exercise," Selman said.
     The Insured Retirement Institute is a trade association for firms offering annuities an investment class that can provide income in retirement.
     The day after Selman's speech, Susan Nash, associate director of Investment Management at the Securities and Exchange Commission, continued on the theme of self-awareness and product knowledge.
     She said that the annuities industry had an important role to play in the future of America's seniors and that this vested the industry "with a special responsibility to look out for investors."
     She urged institute members to adopt "clear, plain English" in writing their product prospectuses and to make sure that each prospectus reflects the product offering.
     "The information that investors need should not be obscured with irrelevant disclosure aimed at investors in some other version of a contract," Nash said.