Investing your money always comes with some level of risk. After all, you are putting your hard-earned savings and trust into the market, and a lot can happen along the way. Your investments may not perform as expected. There could also be fraud or misleading advice that conflicts with your interests. Even hiring a financial advisor is not completely risk-free if you do not know how to verify their credentials or background.
Fortunately, there are systems in place to protect you. The U.S. government has established several regulatory agencies that oversee financial markets, companies, and advisors. Their job is to make sure the system runs fairly, transparently, and in compliance with the law. Understanding what these major U.S. financial regulatory bodies do and their functions and responsibilities can be helpful.
Let’s take a closer look at the key regulators in the U.S., their main functions, and how regulation protects investors.
Financial regulators overview
There are several major financial regulatory bodies in the U.S. These regulators can be either government agencies or independent organizations. Their primary goal is to protect the interests of consumers and investors while maintaining financial system stability.
Financial regulators may oversee banks, credit unions, thrifts, investment firms, savings and loan associations, and just about any institution that handles your money. They also regulate the stock market, enforce necessary laws, and monitor activities to help ensure that financial markets remain transparent, competitive, and, above all, trustworthy.
Regulators' functions and responsibilities are quite varied. They enforce laws and monitor the activities of different firms and individuals. They also supervise financial institutions through regular inspections and audits, ensuring they manage risks properly and do not engage in activities that could harm customers or the economy.
Unfortunately, not everyone plays fair in the financial world. Some people try to take advantage of the system by manipulation and fraud. Regulatory agencies ensure that participants do not bend the rules and that you, as an investor, have access to accurate and reliable information before making financial decisions.
Functions and responsibilities of regulators
Here are some functions and responsibilities of financial regulators:
- Overseeing financial markets and monitoring the activities of financial institutions and individuals.
- Enforcing laws and ensuring compliance to make sure all participants follow established standards.
- Ensuring transparency so investors and consumers can make informed decisions based on accurate information.
- Conducting audits and inspections to prevent fraud and maintain investor trust.
- Managing risk and protecting investors by assessing and mitigating risks while safeguarding the interests of investors and consumers.
- Preventing scams and taking action against fraudulent schemes, market manipulation, and any kind of financial crime.
Major financial regulatory bodies in the U.S.
Let’s get to know a bit about the major financial regulatory bodies that operate in the U.S.
1. The Federal Reserve – Also referred to as the Fed
The Federal Reserve is the central bank and one of the major financial regulatory bodies in the U.S. It was established in 1913 through the Federal Reserve Act. It aims to create a safer and stable financial system.
The structure of the Federal Reserve System includes the Board of Governors in Washington, D.C., 12 regional Federal Reserve Banks spread across major cities, and the Federal Open Market Committee (FOMC), which consists of 12 voting members from both the Board of Governors and the Reserve Banks. Together, they make key decisions about the U.S. monetary policy.
The Federal Reserve promotes financial stability by identifying and addressing risks. It is responsible for supervising and regulating financial institutions to ensure the safety of banks, especially those that are members of the Federal Reserve System. The Fed also focuses on maintaining the efficiency and security of the country’s payment and settlement systems and ensuring that all financial transactions run smoothly. Additionally, it prioritizes consumer protection by enforcing fair lending practices. It also promotes financial education.
2. The Financial Industry Regulatory Authority (FINRA) – Understanding FINRA financial regulations
The Financial Industry Regulatory Authority, better known as FINRA, plays a significant role in keeping the financial industry fair and transparent. Unlike government agencies, FINRA is a private, not-for-profit organization. It acts as a self-regulatory body for member broker-dealers. It operates under federal law and is responsible for overseeing its member firms to ensure they comply with the rules set out in the marketplace.
FINRA financial regulations are designed to protect investors, promote market transparency, and ensure that all financial professionals act in their clients' best interests. FINRA’s Board of Governors includes both industry representatives and public governors. The organization also works closely with its 13 advisory committees, which provide feedback on proposed rules and updates to FINRA financial regulations.
One of the most important tools FINRA offers investors is BrokerCheck. This free database lets you look up background information on brokers, financial advisors, and other financial professionals. You can use it to verify whether an advisor is registered and see their qualifications. It also allows you to check for any disciplinary actions taken against the professional in the past.
FINRA examines its member firms regularly to ensure compliance with both federal laws and FINRA financial regulations. The organization has the authority to impose strong disciplinary measures, including fines. It can also suspend or permanently bar individuals or firms. It also helps investors and customers recover their funds in the event of fraud and supports investor protection.
In addition, FINRA administers licensing and qualification exams for securities professionals. It also conducts and administers qualification exams for financial professionals.
3. The independent bureau known as the Office of the Comptroller of the Currency (OCC)
The OCC is an independent bureau within the U.S. Department of the Treasury. The main functions and responsibilities of regulators like the OCC include maintaining the integrity and stability of the nation’s banking system. It is responsible for chartering, regulating, and supervising national banks, as well as the U.S. branches of foreign banks. The OCC grants approvals to banks seeking to operate under a national charter. It also keeps an eye on how the bank conducts its business.
The OCC has the authority to approve or deny applications for new bank charters, mergers, and branches. It ensures that banks operate soundly, follow the law, and maintain sufficient capital to manage financial risks. It also helps ensure that banks remain stable and support both their customers and the economy.
Another critical role of the OCC is to make sure that banks have the flexibility to engage in all legally permissible activities that support their long-term success. This allows banks to innovate and grow while still operating within a well-defined regulatory framework. The OCC also ensures that all customers receive fair access to banking services and are treated equally.
4. Understanding SEC financial regulations, short for the Securities and Exchange Commission
The Securities and Exchange Commission (SEC) was established in 1934, during the Great Depression. It aimed to rebuild public confidence in U.S. financial markets. It is the primary federal agency and is responsible for overseeing investment offerings and securities trading.
The SEC plays a decisive role in maintaining transparency and investor trust. It monitors more than $100 trillion in securities traded each year across U.S. equity markets. The agency is led by five commissioners appointed by the President. Each of them is tasked with enforcing SEC financial regulations.
The SEC’s primary mission is to make sure that companies offering securities to the public are transparent about their operations and risks. Under SEC financial regulations, companies must provide complete and accurate information so investors can make informed choices.
Brokers, investment advisers, and exchanges must also follow strict ethical and professional standards laid down by the SEC. SEC financial regulations require all market participants to act fairly and disclose conflicts of interest at all times.
The SEC also enforces registration requirements for both securities and the firms that deal in them. Any company looking to sell securities in the U.S. must register them with the SEC, and financial service providers, such as broker-dealers, asset managers, and advisory firms, must register before doing business.
The SEC operates under key federal laws such as:
- The Securities Act of 1933
- The Securities Exchange Act of 1934
- The Investment Company and Advisers Acts of 1940
- The Sarbanes-Oxley Act of 2002
5. Consumer Financial Protection Bureau (CFPB) – one for consumer safety
The Consumer Financial Protection Bureau (CFPB) was founded in 2011 to protect consumers in the financial marketplace and ensure that financial products and services are transparent, fair, and competitive. The CFPB enforces federal consumer financial laws and oversees a wide range of financial products, such as credit cards, mortgages, and student loans. Its goal is to make sure that consumers can make informed decisions and are not taken advantage of by unfair practices.
The CFPB conducts examinations of financial institutions similar to those performed by other federal and state regulators. The bureau also handles consumer complaints and offers a platform for individuals to report issues and seek resolution. The CFPB also focuses on education and research, and conducts research to understand the consumer experience when using financial products.
6. State financial regulators – one for every state
State financial regulators are among the major financial regulatory bodies in the U.S. They oversee financial institutions within their jurisdictions. These regulators work closely with federal agencies to ensure that both state and national standards are met. In most states, the state banking department is headed by an official appointed by the governor, often with titles such as commissioner, director, or superintendent.
The responsibilities of state regulators extend to chartering, licensing, and supervising state-chartered banks, as well as overseeing nonbank financial service providers such as credit unions and mortgage lenders.
State regulators help ensure that all parties comply with applicable laws and provide fair and transparent services to consumers. Every state has at least one banking or financial services agency dedicated to protecting consumers. They also conduct inspections and audits to prevent fraud and other risks.
Financial regulators overview
Financial regulators oversee banks, credit unions, investment firms, and other financial institutions to protect the interests of consumers and investors. Their work includes conducting audits, examining institutions for compliance and qualifications, and ensuring that financial entities operate transparently.
While there are many regulators, the article discusses some of the most commonly referenced ones, which are good starting points for investors. If you are looking to invest or hire a financial advisor, you can check them when evaluating potential advisors, filing complaints, or resolving issues with banks or stock market transactions.
Legitimacy is everything in investing. Even when you are hiring a financial advisor, it is crucial to verify credentials through trustworthy sources. You may explore our financial advisor directory to find advisors who are properly registered and compliant with regulatory standards.
Frequently Asked Questions (FAQs) about major financial regulatory bodies in the U.S.
1. What are some financial regulatory bodies in the U.S.?
Some of the major financial regulatory bodies in the U.S. include the Federal Reserve, the Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC), the Consumer Financial Protection Bureau (CFPB), and the Office of the Comptroller of the Currency (OCC), among others.
2. Do all countries have regulatory bodies for finance?
Yes, most countries have financial regulatory agencies to ensure transparency and maintain discipline in financial markets.
3. Why should investors know about these regulatory bodies?
Knowing about these regulators helps you understand who to reach out to in case of grievances, how to verify the legitimacy of financial advisors, and how regulation protects investors.
4. Are there international regulatory bodies?
Yes, several international organizations work to promote transparency across global financial markets. Some examples include the International Organization of Securities Commissions (IOSCO), Bank for International Settlements (BIS), and the International Association of Deposit Insurers (IADI).