Where To Start with Finances and More

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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. Securites are regulated by numerous laws. Legislation is in place to prevent financial firms from taking irresponsible risks. Financial firms greatly mishandled securities, which lead to 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. In the midst of the Great Depression and a year after enacting The Securities Act of 1933, Congress created the Securities and Exchange Commission. 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.

Besides establishing the SEC, the Securities Exchange Act of 1934 is important for additional reasons. The Act prohibits insider trading, the practice of buying or selling a security by an individual who has information on that security that is not shared with the public. In a further effort to promote disclosure within the financial industry, Congress passed the Investment Company Act of 1940. The Act requires that companies, including mutual funds, share their policies regarding the overall financial health of the company each time the company’s stock is sold. Additionally, each time a company sells stock it must also share investment activity.

Trends in securities law

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 would protect consumers, regulate credit ratings, and call for greater transparency, among other stipulations.

Regulating financial securities may become more technical with the advancement of banking technologies. Take Bitcoin. Bitcoin is a cryptocurrency, or a type of electronic cash, that can be difficult to legislate. 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.

Governments will need new technologies to regulate the popularity of cryptocurrencies such as Bitcoin.

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