The Key Legislation That Governs the Financial Securities Industry
A security is simply defined as the documentation of either ownership or debt that can be given a monetary value for the purpose of selling these items for profit-sharing. Many securities are purchased from an initial public offering, or IPO. Securites are regulated by numerous laws. Regulations are strict to prevent corporations from buying and selling securities that are dicey on the Exchange. Financial firms greatly mishandled securities, which lead to the 2008 financial crisis in the United States.
Know These Five Laws That Regulate Securities.
As stated in the Securities Act of 1933, the public must be sold securities that have been properly vetted. In the midst of the Great Depression and a year after enacting The Securities Act of 1933, Congress created the Securities and Exchange Commission. Under the Securities Exchange Act of 1934, the SEC has the power to broadly regulate securities, including taking disciplinary action against individuals who fraudulently sell them on the New York Stock Exchange, the Chicago Board of Options, and NASDAQ.
Besides establishing the SEC, the Securities Exchange Act of 1934 is important for additional reasons. The Act bans selling or buying a security by a person who has knowledge about the security but that information has not been shared to the public, a practice called insider trading. To facilitate additional information-sharing within the financial sector, Congress created the Investment Company Act of 1940. The Act says a company cannot sell their stock unless they disclose the general financial status of the company. The Act also stipulates a company must disclose investment activity with each selling of stock.
More recent legislation
Financial firms are not the only entities catalogued at the SEC. In 1940, Congress established the Investment Advisers Act that stated that advisers compensated for their securities investment advice must also registered with the SEC. Advisers with more than $100 million in assets are those only required to register with the SEC.
Passed in 2002, the Sarbanes-Oxley Act extended the reach of regulation by pushing for more corporate responsibility by creating a Public Company Accounting Oversight Board to monitor the practices of auditors.
Maybe the most radical change to financial regulations since the 1940s was the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The act highlighted several areas to protect consumers, including by regulating corporate governance and disclosure policies.
Writing new legislation to accommodate changing banking technology is a challenge. Take Bitcoin. The cryptocurrency Bitcoin is one that is challenging to regulate. Chris Brummer, director of Georgetown’s Institute of International Economic Law, says the cryptocurrency will be difficult to use within our existing financial system. Brummer has stated that the origins of Initial Coin Offerings are not always identifiable, making it impossible for investors to keep track of fraud.
As cryptocurrencies increase in popularity, governments will need to regulate with technology that can keep up.