Interesting Research on Regulations – What You Didn’t Know

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. Often securities are sold through the stock exchange. However, there are several laws that regulate securities. Legislation is in place to prevent financial firms from taking irresponsible risks. It was risky securities that resulted in the 2008 financial crisis in the United States.

Five Laws That Regulate Securities.

According to the Securities Act of 1933, investors must receive substantial, truthful representation from sellers about the securities being sold to the public. The Securities and Exchange Commission was created shortly thereafter. The SEC not only governs securities but it also can take legal action against individuals who misrepresent securities on the various U.S. stock exchanges.

The SEC was not the only critical piece of legislation to come out of the Securities Exchange Act of 1934. Insider trading is prohibited by the Act, which says that an individual cannot buy or sell a security if all information about the security has not been disclosed to the public. In a further effort to promote disclosure within the financial industry, Congress passed 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. Additionally, each time a company sells stock it must also share investment activity.

Changes to financial securities regulation during the last two decades

The SEC registers people, too. By 1940, Congress was mandating that advisers compensated for their investment advice should also be registered with the SEC.Although initially enacted by Congress more than a half century ago, the Act was amended in 1996 and 2010 to only include advisers who have more than $100 million in assets.

The Sarbanes-Oxley Act of 2010 created a Public Company Accounting Oversight Board to keep tabs on the activities 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.

Regulating financial securities may become more technical with the advancement of banking technologies. Consider Bitcoin. Bitcoin is a cryptocurrency, or a type of electronic cash, that can be difficult to legislate. Chris Brummer, director of Georgetown’s Institute of International Economic Law, cautions the currency is difficult to incorporate within U.S. stock exchanges. It is nearly impossible to keep track of fraud for a percentage of Initial Coin Offerings whose origins are unknown, says Brummer.

As cryptocurrencies increase in popularity, governments will need to regulate with technology that can keep up.

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