Everything You Need to Know About SEC Compliance and Its Relation

The Securities and Exchange Commission (SEC) was the first independent federal government regulatory agency in the United States. In 1934, Congress enacted SEC by Securities Act,1934 to protect investors’ interests, regulate the securities market, and prevent investors from fraudulent malpractices.

The concept of securities market regulation evolved after the Wall Street crash in 1929. Congress discovered that a securities market crash happened due to financial market transactions such as lack of information about securities, wrong and absurd claims by selling companies, and inappropriate financial disclosure.

These loopholes and shortcomings of the financial market have given rise to a strong need for regulatory bodies at the federal and state level. The Securities and Exchange Commission has provided a complete regulatory solution for investment protection.

Conceptual framework of Securities and Exchange Commission

As a federal regulatory body, the SEC has been established in the United States to regulate financial and securities market transactions. Transactions related to derivatives are not covered under the Securities and Exchange Commission’s regulatory measures. Specifically, the following key functions and transactions are covered under the framework of the SEC:

  • Protecting investors’ rights regarding the investment transactions.
  • Ensuring full disclosure of information by companies selling financial securities.
  • Investment compliance monitoring at the federal level.
  • Monitoring and regulating fraudulent malpractices in the securities market.

Introduction to Securities and Exchange Compliance

The SEC compliance is related to rules and regulations made under the Securities Act, 1934. These rules and regulations apply to different financial market stakeholders like investors, securities issuing companies, stockbrokers, mutual fund companies, and participants of the securities market system. The federal agency strictly monitors financial actions of these participants at civil, criminal, regulatory, and self-regulatory levels.

Regulatory bodies for SEC compliance

Following are different rules, regulations, and bodies that ensure safe securities market transactions without fraudulent actions:

SEC laws and regulations

Several laws and regulations enforced by the SEC direct the companies to disclose full information to the public regarding financial securities, companies’ fundamentals, offerings, and services. These rules and regulations are intended to educate investors about buying and selling of securities.

Companies and other participants need to comply with certain regulations under the Securities Act, 1933,  Securities Act, 1934, Trust Indenture Act 1939, Investment Advisers Act 1940, and Investment Company Act 1940.

Office of Compliance Inspection and Examination (OCIE)

By conducting a national examination program under SEC, OCIE ensures investment compliance monitoring, integration of the market, and protection of investors along with capital formation. It encourages securities market compliance through various programs, examinations, and referrals to the Division of Enforcement.

Securities and Exchange Commission utilizes National Examination Programme’s rules and guiding principles to improve market practices.

Following are some examination programs under OCIE:

  • Investment Advisory/Company Examination: This program examines the compliance of companies and advisors with respect to SEC rules and regulations. It especially monitors compliance related to Advisers Act, 1940 and the Investment Company Act, 1940.
  • Broker/Dealer Examination Program: It examines the brokers and dealers to ensure that they comply with the Securities Exchange Act, 1934. For this, SEC collaborates with stock exchanges like New York Stock Exchange and NASDAQ stock market.
  • Market Oversight: With this examination, OCIE monitors stock exchanges and the securities market to ensure that they are complying with norms, rules, and regulations.

The Office of the Chief Accountant (OCA): Compliance regarding registered financial reports

Under the SEC, the office of the Chief Accountant establishes certain accounting and auditing policies for transparent financial reporting. It also improves the auditor’s performance for credible and fair financial statement presentations. The OCA works with three sub-categories to ensure better compliance with auditing and accounting norms.

  • Professional Practices Group establishes auditing policies and procedures to ensure fair financial reporting.
  • The Accounting Group deals with domestic companies to examine their auditing and accounting practices.
  • International Affairs Group collaborates with professional Practices Group and Accounting Group for guiding international companies.

Audits under Securities and Exchange Commission

To get information regarding investment firms and advisors’ compliances, the SEC conducts special audit events on a routine basis. These audits examine whether investment firms and advisors follow SEC’s rules and regulations or not. These audits make companies adopt prescribed rules for every operation.


The Securities and Exchange Commission’s regulatory laws, divisions, and bodies establish certain rules for different market participants. These regulations are directly related to investor protection and fair market practices. Proper compliance by brokers, companies and other market participants assists in fair securities market transactions and effective financial reporting.

Leave a Reply