The Purpose of Financial Regulation
The primary goal of financial regulation is to maintain the integrity of the financial system. Regulators work to protect investors, prevent and detect market manipulation, and ensure that financial institutions operate in a safe and sound manner. Without effective regulation, financial markets would be vulnerable to fraud and instability, which could have devastating effects on the broader economy.
Key Regulatory Bodies in the United States
In the U.S., the regulatory landscape is complex, with several agencies overseeing different parts of the financial industry.
- Securities and Exchange Commission (SEC): The SEC's mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. It oversees stock exchanges, brokers and dealers, investment advisors, and mutual funds.
- The Federal Reserve (The Fed): As the central bank of the United States, the Fed has a broad mandate to promote the stability of the financial system. It supervises and regulates many of the nation's largest banks.
- Financial Industry Regulatory Authority (FINRA): A self-regulatory organization that oversees all brokerage firms doing business in the U.S.
The Importance of Investor Protection
A key function of regulators like the SEC is to ensure that investors have access to accurate and timely information about the securities they are buying. Public companies are required to disclose meaningful financial and other information to the public, allowing investors to make informed decisions. Regulators also enforce laws against fraud, such as insider trading and accounting fraud.
Back to Finance Hub