Rules and regulations are an essential part of the financial industry. They help maintain a free cash flow throughout the market while protecting consumers’ and investors’ interests. External ruling shields the investors from fraud and excessive risk associated with unscrupulous operators. SEC or Securities and Exchange Commission is a federal government regulatory agency that governs the asset management industry. It protects the investors, maintains order in the securities market, and facilitates the capital formation and fund marketing. Every fund manager must abide by SEC rules to stay operational in the market. Let’s examine the importance of the SEC’s ruling for fund managers.
Important Information About Securities and Exchange Commission
The SEC is a securities markets regulatory agency that Congress created in 1934. Being one of the oldest and most trusted regulatory agencies in the US, it is highly reliable for protecting investors from fraud and risks. The body prevents manipulative market practices, monitors business takeover activities, and promotes complete public disclosure. Generally, the SEC registers every security offered in interstate commerce before presenting it to the investors. It also registers every broker-dealer, advisory firm, fund manager, asset manager, and other representatives to conduct business in the market.
With all its regulations and registrations, SEC ensures fairness in the securities market. It regulates every fund manager with an AUM of over $110 million. Advisors below this benchmark must register with their respective states. By registering with the SEC, the fund manager agrees to abide by SEC’s ruling and undergo unscheduled audits while handling fund marketing.
How Does SEC Ruling Work?
SEC oversees every individual and organization operational in the securities market. These include fund managers, investment advisors, brokerage firms, securities exchanges, dealers, investment funds, etc. The entity promotes shared market information through established rules and regulations for fair dealing and fraud prevention. The agency uses EDGAR (Electronic Data-Gathering, Analysis, and Retrieval Database) to ensure providing registration statements, securities firms, and financial reports to the investors.
Through its 23 offices and five divisions, SEC interprets and takes enforcement actions on investment laws, oversees securities institutions, issues new rules, and coordinates regulations among different government levels. Its five divisions are:
- Corporate Finance Division: Ensures material information to the investors to help them make informed decisions.
- Enforcement Division: Enforces SEC ruling by prosecuting civil suits, investigating cases, and monitoring administrative proceedings.
- Investment Management Division: Regulates insurance products, investment companies, and investment advisors through asset management and fund marketing processes.
- Economic and Risk Analysis Division: Uses data analytics and economics to perform appropriate actions.
- Trading and Markets Division: Builds and maintains ruling standards that fund managers must follow for efficient and orderly securities markets.
Regulatory Compliance for Fund Managers
Every fund manager must abide by SEC’s ruling to comply with its policy standards, rules and regulations, and internal policies according to the specific sector. Compliance ensures that the manager follows the SEC rules, and the need to comply increases as the AUM grows. When a fund manager complies with SEC, its business runs smoothly.
Complying with SEC rules help a fund manager provide detailed reports, improving the chances of target achievement and identifying the scope of improvement. There are specific rules that fund managers must follow while developing and marketing funds, failing which attract hefty fines they must pay to violate the regulations during audits. Besides monetary loss, non-compliance also negatively impacts the brand’s reputation. If the fund manager does not comply with security and safety, the investors will change their fund managers because they will feel worried about their capital. However, if the fund manager complies with the SEC ruling, investors are attracted automatically.
Brands’ image is vital for a fund manager, especially when investors put a lot of trust in them. Obviously, when they lose customers, their business suffers. So, abiding by the SEC’s ruling ensures that the fund management’s image remains transparent and clean and the investors stay protected against fraudsters.
Complying with the SEC rules is extremely important for a fund manager, keeping the brand image clear and encouraging investors to invest more without suspicion. However, not complying with the rules leads to negative consequences for the investors and also for the fund managers. Therefore, stay extra vigilant while fund marketing and management and stay updated with the latest rules not to miss any.