While financial regulation can seem like a hurdle for those operating in the financial markets, these laws and legislation have been introduced for a reason. With the intention to protect businesses, banks, and consumers from fraud or unfair practices, these regulations have been introduced with safety in mind, but they can certainly be difficult to follow at times.
With an abundance of regulation from an equally large number of regulators, working out the best course of action for your business can seem like a maze; here, we’re looking at how to not get lost with financial regulation.
Does The USA Have Too Many Financial Regulators?
With seven different financial regulators in the US covering a number of different financial focuses, you’d be forgiven for finding it difficult to follow. The main regulators are as follows:
- S Commodity Futures Trading Commission (CFTC)
- Financial Industry Regulatory Authority
- National Futures Association
- Securities and Exchange Commission
- Securities Investor Protection Corporation
- Federal Deposit Insurance Corporation
- Foreign Account Tax Compliance Act
While seven regulators for a country as large as the US may not seem excessive, this can make it difficult to achieve consistency across the board, particularly for businesses or individuals who are unsure which regulations will apply to them. What’s more, there are a number of other groups and processes in place to protect financial operations and it’s for this reason that the number of regulators in the US could do more harm than good, though this is certainly up for debate.
Why Financial Regulation Is Important
Regardless of the potential confusion, having financial regulation in place is important. From the simple operation of day-to-day buying and selling to financial trading on the foreign exchange, regulation has been introduced over the years to protect businesses, professionals, and the public from financial fraud, abuse, or unethical practice. This includes mortgages, credit cards, loans, and any other financial products and takes into account banking options, account types, bonus policies, customer support, and other important regulation aspects.
Without this financial regulation, the financial markets are at risk of illegal, unjust, and unfair operations. Anyone operating within them would essentially be working within a free market, which could lead to recessions and crises when ‘asset bubbles’ is created and burst. With legislation and protection in place, the financial market is prevented from falling into a recession as easily.
On a consumer level, regulation helps to prevent banks, financial institutions, and other operations from committing fraudulent activity with their customers. Regulation acts as a protective layer, helping to manage and prevent social concerns like the environment, the spread of business across the country, and fair pricing and interest rates. Whether they’re simply operating in the consumer market or looking to start up their own business, these regulations can help to protect them from profit-hungry corporations.
The US Regulators
Every financial part of the US has its own regulator. This includes financial markets, banking, and consumers. Here, we’ve covered who regulates these:
Financial Markets
Within the financial markets, you’ll want to pay the most attention to The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The SEC is the very center of all federal financial regulation, acting to maintain and regulate the stock market and other corporate operations. They ensure that all corporations are handling their filing correctly, will investigate and prosecute violations of securities regulation and even regulate investment management companies. If you fall into one of these categories, you’ll want to pay careful attention to the Sarbanes-Oxley Act of 2002.
The CFTC, on the other hand, regulates the commodities futures of a number of different commodities, which can include anything from food, gold, and oil, to monopolies on a number of other goods. They can also regulate and handle the swaps markets, which is a much-needed regulation after the credit default swaps played some part in the 2008 financial crisis.
Banking Regulations
For banks, regulation is certainly a hot topic and one that needs to be adhered to closely. You’ll need to pay attention to The Federal Deposit Insurance Corporation and the Federal Reserve, through the Office of the Comptroller of the Currency and the National Credit Union Administration are also worth looking into should you operate within any of their controlled areas.
The Federal Deposit Insurance Corporation regulates over 5,250 banks and acts as a support, the insurer for savings, checking, and deposit accounts and can help failed banks find a buyer. They will also help to transfer depositors to the new bank to ensure that consumers and others operating with the bank are protected.
When it comes to banking regulators, they typically focus on four things:
- They make sure every bank is operating safely and soundly
- They examine the bank’s capital to ensure it is adequate
- They ensure any deposits made
- They will evaluate any potential threats to the banking system.
Consumers
For consumers, every regulatory company can help in some shape or form, however, it’s the Consumer Financial Protection Bureau that is most important here. Operating under the U.S Treasury, they ensure that any bank or financial institution doesn’t overcharge for their services, whether that’s debit cards, credit cards, or loans, to protect the consumer from unfair lending. Over the years they have introduced a regulation that ensures all risks for loans and mortgages need to be explained, and that verification is given for any borrower’s income.
The US financial system may never be a completely clear one to follow, but understanding which regulatory body your business or career operates under can help you to ensure that you are operating within regulation. With this base understanding, you can know which regulations you need and seek the support you need in order to follow them effectively.
