By David McNeal,
Contributor of My Compliance Blog
By Cory Roberson, Principal
of FIN Compliance and FIN Community
November 10, 2018. In
the U.S., the securities industry features a myriad of regulatory bodies. The
purpose of this articles is to help you realize which state, federal, and
self-regulated organizations regulate your area in the securities industry.
State and
Provincial Securities Regulators
Starting with the passage of the first “blue sky” law in
Kansas in 1911, state and provincial securities regulations geared its legislation to protect investors from fraud over the last 100 years. Eight years later, a small group
of state securities regulators organized a network of colleagues who worked
together to protect investors throughout North America.
The North
American Securities Administrators Association (NASAA)
Founded in 1919 in Kansas, The North American
Securities Administrators Association is the oldest international
investor protection organization to include all other organized securities
regulators, including the Securities and Exchange Commission (SEC)
and the Financial Industry Regulatory Authority (FINRA).
As the preeminent voice of state and provincial securities
regulators in the United States, NASAA is responsible for educating and
protecting investors from fraud and abuse, supporting capital formation, and
helping ensure the integrity and efficiency of financial markets., covering all
50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands,
Canada, and Mexico.
Securities & Exchange Commission (SEC)
The U.S. Securities and Exchange Commission is
a federal congressional agency responsible for enforcing state securities laws
and regulating the securities industry, national stock and options exchanges,
and other electronic securities markets.
The
Securities Exchange Act (SEA)
The SEC was created with the passing of The Securities Exchange
Act of 1934 (SEA) to regulate post-issuance securities transactions in
the secondary market to ensure greater financial transparency and accuracy and
less fraud or manipulation
The
Securities Act of 1933:
The SEC is responsible for investigating and enforcing The Securities Act of
1933, which requires that securities offered or sold to the public in
the U.S. must be registered by filing
a registration statement with the SEC. A prospectus is generally
filed along with the registration statement.
The main objectives of the Securities Act of 1933 is:
to require that investors receive significant (or “material”)
information concerning securities being offered for public sale;
to prohibit deceit, misrepresentations, and other fraud in the
sale of securities to the public.
Exemptions:
Regulation A offerings (JOBS Act Title IV;
known as Regulation A+), which are offered to non-accredited and accredited
investors alike.
Regulation D offerings (506(c)), which are
offered only to accredited investors.
Regulation Crowdfunding offerings (JOBS
Act Title III), which are offered to non-accredited and accredited investors
alike.
Other
Acts governed by the SEC:
Investment Advisor Acts of 1940 - regulation of
advisors
Securities Exchange Act of 1934 - regulation of
exchanges
Investment Company Act of 1940 - regulation of
funds, fund exemptions
State Uniform Securities Act (NASAA) –
regulation of advisors, broker-dealers, other
financial intermediaries
State Uniform Securities Act (State Blue Sky Laws) -
registration of securities (in-state)
US
Treasury Financial Crimes Network (FinCEN)
Established in 1990, The Financial Crimes Enforcement
Network is an office of the US Treasury Department. As the
financial-intelligence gathering arm of the U.S. Treasury, FinCEN collects and
analyzes information about financial transactions to combat domestic and
international money laundering. FinCEN is delegated the admin of the BSA (Bank
Secrecy Act).
Under the Bank Secrecy Act FinCEN requires that
financial institutions address the following elements in all of their AML
programs:
Title I - contains provisions requiring financial institutions,
securities broker dealers, etc. to maintain detailed records of customer
transactions and accounts.
Title II - demands that financial institutions, and sometimes
individuals, report certain transactions to the government.
Self-Regulatory Organization (SRO)
As the term suggests, a Self-Regulatory Organization regulates
itself. It also has some regulatory impact on an industry or profession, often
achieved through internal mechanisms that control the flow of business, or
through an external agreement between similar entities. An outstanding example
of an SRO is the Financial Industry Regulatory Authority.
Financial Industry Regulatory Authority (FINRA)
On July 30, 2007, the Financial Regulatory Authority was
established with the approval of the SEC. FINRA became by far the largest
non-governmental regulatory organization for securities brokers and traders in
the United States.
FINRA can license securities dealers. This includes the ability to
audit dealers and affiliates and ensure
compliance with regulatory standards. The aim is to promote ethical
practices and improve transparency within the sector. FINRA also oversees
arbitration between investors, brokers and other parties involved. This
provides a standard for handling various disputes, but also limits the actions
a company can take outside the system. When arbitration is mandatory, it is
typically referred to as binding arbitration.
Commodity Futures Trading Commission (CFTC)
The Commodity Futures Trading Commission is
an independent U.S. federal agency established by the Commodity Futures Trading
Commission Act of 1974. The CFTC regulates the markets for commodity futures
and options.
The Commodity Exchange Act (CEA) regulates
trading in commodity futures in the United States. The CEA was adopted in 1936
and has been amended several times since then. It defines the legal framework
under which the CFTC operates. This Act empowers the CFTC to adopt rules
published in Chapter I of Title 17 of the Code of Federal
Regulations (CFR).
Federal Trade Commission (FTC)
The Federal Trade Commission was established on
September 26, 1914, when President Woodrow Wilson enacted the Federal
Trade Commission Act. The FTC protects consumers by preventing unfair,
fraudulent or fraudulent practices on the market.
They investigate and sue violators, develop rules to ensure a
vibrant market, and inform consumers and businesses of their rights and
obligations. By enforcing antitrust law, the FTC helps to ensure that our
markets are open and free. The FTC challenges anti-competitive mergers and
business practices that could harm consumers by leading to higher prices, lower
quality, less choice or lower rates of innovation.
Municipal Securities Rulemaking Board (MSRB)
The U.S. Congress created the Municipal Securities
Rulemaking Board in 1975. It was given the assignment of creating rules and
policies that would help prevent fraud and misleading acts in the securities
industry. The MSRB regulates the issuing and sale of municipal bonds, notes,
and other municipal securities.
One of its first accomplishments was creating a set of uniform
standards dictating fair practices that municipal securities dealers should
follow. The organization was also instrumental in paving the way for a smooth
transition from traditional paper bonds to electronic versions in the 1980s.
Conclusion
In today's rapidly changing financial marketplace, registered
investment advisors need to fully understand their regulatory
environment to successfully evaluate opportunities for operators and
investors, and to respond quickly to the evolving and complex regulatory
landscape. Public and private companies and investors must navigate a much more
complex market with a heightened level of scrutiny. It’s more important than
ever to provide first-class guidance in meeting the challenges and
opportunities these areas present.
Compliance and Business Management
FIN Compliance (FinCompliance.io) is a
consortium of compliance services including: RIA Consults-Roberson Consults
Group, a compliance consulting firm, RIA Review, a compliance-management
software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management
software tool, and FINLancer is a business
management portal featuring: E-signature tools; Invoicing integration,
Vendor Directory, continuity directory*, business client document portal, and
more (available by Q3 2019). Access all services
on one site: FINCompliance.io.
Impact
FIN Missions (FINmissions.com) provides business support group
sessions for other entrepreneurs. In addition, Cory has volunteered
for more than fifteen youth programs in locations such as like S. Korea, China,
S. Africa, Thailand, and India.
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