What is the Securities and Exchange Commission (SEC)?

The Securities and Exchange Commission (SEC) is a critical US regulator that exists to protect, regulate activity and provide security in the US financial markets. In the United States, the SEC strives to create fairness in the market and aims to inform investors – giving them the right and necessary information to make their investment decisions.

History of US market management

The introduction of the SEC dates back to 1934, coinciding with the implementation of the Securities and Exchange Act. Both of these measures were introduced as a way to restore public confidence in corporation finance, in reaction to the 1929 market crash.

This crash crippled the securities industry and the US economy (it was known as the Great Depression, after all), and therefore, the SEC and SEA aimed to make sure the consequences of this could never be repeated.

The Securities Exchange Act (SEA) works hand in hand with the SEC, with the SEA forming the federal securities law, and the SEC staff enforcing it. For example, the Securities Exchange Act specifies the disclosures that each company must make, and the SEC manages compliance, sometimes taking companies to federal court. 

The SEC’s duties expanded in 2002 with the introduction of another legal Act. The Sarbanes-Oxley Act aims to protect investors from corporate fraud, having been introduced in response to early 2000s stock market scandals which, again, reduced investor confidence in the markets. 

What does the SEC do?

In order to protect investors, the SEC rules include certain disclosures to be revealed by financial companies. This provides the data that potential investors may need before they make any investment decisions. Since 59% of the markets are controlled by the general public investing, this is an incredibly important part of the SEC’s role. 

These disclosures are regularly updated as the market (and new technologies) move. For example, in May 2022, we expect to see new ESG disclosures rolled out across the board to help inform investors about the environmental, social, and governance opportunities and consequences of their investments.  

Moreover, the SEC strives to make access to capital easier, especially when companies require funding to grow. Those registered with the Commission get access to certain channels, enabling job creation and resources for research & development. 

Finally, the SEC’s fair market objectives require the monitoring of thousands of corporate finance organizations operating inside the markets. The division of examinations is a branch of the SEC that conduct routine investigations. 

Alongside the formation and enforcement of regulations, the SEC provides tools and resources to financial services in order to help them comply. Accounting standards are a good example of this, as well as resources for whistleblowers when instances of insider trading occur.

Who must comply?

The SEC is a financial industry regulatory authority similar to that of the FCA, found in the UK. It requires compliance from all registered entities, including the likes of:

• Securities brokers
• Individual investment adviser
• Investment management companies
• Publicly traded companies
• Clearing agencies
• Mutual funds companies
• Any other company or individual working in association with the financial markets

In fact, after the withdrawal of the UK from the EU, the FCA and SEC are now working together in order to form common policies and regulations. This is the start of creating one single standard across the globe, where there is currently a huge gap between operations in regulation for different jurisdictions. 

To keep up with regulation changes, working with AI is now the only way to manage, especially for large companies that are trying to manage compliance in multiple jurisdictions.

Ensure your firm complies with all relevant regulations from the SEC and other regulatory bodies.