Glossary

SEC Regulations

After the stock market crash of 1929, economists and government officials sought to protect the free market from fraud and manipulation. So, Congress created the United States Securities and Exchange Commission in 1934. The SEC achieves its goals by overseeing the securities markets, enforcing securities laws, and taking action against violators. The rules enforced by the SEC are collectively known as SEC regulations.

What Are SEC Regulations?

SEC regulations are a set of rules and guidelines that govern the securities industry. These rules protect investors and promote fair and orderly markets. There are many regulations, but some are more relevant to businesses than others. The most significant SEC regulations for firms include the following.

Securities Act of 1933

The act represents the first federal attempt at stock market regulation. It requires companies to disclose information about their securities offerings. The act prohibits companies from making false or misleading statements about their securities. Most of the rules encoded in this act focus on preventing fraud. Over the years, the SEC has made several amendments to keep up with the changing markets.

Securities Exchange Act of 1934

This act regulates the secondary market for securities. It requires companies that trade securities to register with the SEC and disclose information about their financial condition. The act also gives the SEC authority to oversee stock exchanges and bring enforcement actions against violators.

Investment Company Act of 1940

This act regulates mutual funds and other investment companies. It requires these companies to disclose information about their finances and investment strategies. The act also regulates the organizations of these firms and imposes restrictions on how they operate.

Investment Advisers Act of 1940

This act explicitly regulates investment advisers. These professionals guide people investing in securities. The act requires investment advisers to disclose information about their fees and conflicts of interest. It also prohibits investment advisers from engaging in certain types of financial schemes that could lead to or result from fraud.

Who Do SEC Regulations Affect?

Business owners often wonder whether their operations fall under the scope of the SEC and its regulations. However, business industry and operations are only part of the considerations. For example, public companies fall under SEC guidelines whether they sell financial products or not because public offerings generate securities.

Generally speaking, the SEC regulations affect anyone participating in the securities industry. Below are some additional examples:

  • Investors
  • Securities brokers and dealers
  • Investment advisers
  • Mutual funds and other investment companies
  • Exchanges and self-regulatory organizations

What Are the Benefits of SEC Regulations?

The SEC often gets a bad rep in the financial community. After all, it can levy billions of fines in just one year. For example, in 2021, it totaled $3.9 billion in fines. Nevertheless, the SEC does benefit the general market at both the investor and business levels. Consider these benefits:

  • Protection from fraud: The SEC’s rules and investigations help to protect businesses and investors from fraudulent activities, such as pyramid schemes.
  • Increased transparency: The SEC’s disclosure requirements promote transparency in the securities industry. It allows companies to make more informed decisions about their operations.
  • Fair and orderly markets: The SEC’s rules help to ensure that markets are fair and orderly. It benefits businesses by providing stability in the markets.

What Actions Can the SEC Take Against Violators?

The SEC has a wide range of enforcement tools at its disposal. Fines often get the most press because high monetary values get people’s attention. However, the SEC can take additional or alternative action:

  • Injunctions: The SEC can get a court order to stop a violator from continuing their illegal activity.
  • Cease and desist orders: The SEC can order a violator to stop their criminal activity and take steps to prevent further violations.
  • Suspensions and bars: The SEC can suspend or bar a violator from participating in the securities industry.

How Can Capturing and Archiving Solutions Help?

One of the main requirements of the SEC is that affected firms should preserve business communications. These communications make it possible to investigate or prove compliance with other existing laws. Consequently, failure to properly store communications data can lead to multi-million-dollar fines.

The truth is that, even with the best intentions, keeping track of all communications data across multiple platforms is challenging. Companies need comprehensive capturing and archiving solutions that handle various communications channels, such as SMS, WhatsApp, iMessage, Telegram, and many more.

LeapXpert’s platform achieves precisely that. Even better, it integrates with all other business-critical systems, so that you can focus more on business operations and less on your archiving process. Book your demo today.