Laws That Protect the Financial Securities Sector
Securities are debt and personal property that has monetary worth that can be sold in order to share profits. Raising such capital can be accomplished by going public on the New York Stock Exchange. Securities are governed by a considerable number of laws. 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.
Know These Five Laws That Regulate Securities.
Securities sold to the public cannot misrepresent the truth or be sold fraudulently. A year after Congress established the Securities Act of 1933, it implemented the Securities and Exchange Commission. Individuals who fraudulently sell stocks on the New York Stock Exchange, the Chicago Board of Options, and NASDAQ may face legal action from the SEC, as the Commission has disciplinary authority.
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. Congress passed the Investment Company Act of 1940 to continue efforts for financial disclosure within the investment and banking industries. The Act says a company cannot sell their stock unless they disclose the general financial status of the company. This also includes the company’s investment activity.
More recent legislation
Financial firms are not the only entities catalogued at the SEC. Congress passed the Investment advisers Act of 1940 to mandate that investment advisers receiving compensation for their securities advice had to registered with the SEC. Advisers with more than $100 million in assets are those only required to register with the SEC.
The Sarbanes-Oxley Act of 2010 created a Public Company Accounting Oversight Board to keep tabs on the activities of auditors.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 is possibly the most influential piece of legislation since the Great Depression to change how financial markets operate. The legislation outlined several areas of reform, including everything from trading restriction to consumer protection.
Regulating financial securities may become more technical with the advancement of banking technologies. Take Bitcoin. The cryptocurrency Bitcoin is one that is challenging to regulate. The cryptocurrency is not easily compatible with our current financial system, according to Chris Brummer, director of Georgetown’s Institute of International Economic Law. It is nearly impossible to keep track of fraud for a percentage of Initial Coin Offerings whose origins are unknown, says Brummer.
Regulating cryptocurrencies will pose new challenges for governments of the future.