Guide to the Regulatory Agencies in the U.S. Financial Industry

Key Takeaways

• Discover the 20 major regulatory agencies that govern the financial industry and their history.
• Learn how these agencies impact financial companies like banks, RIAs, and fintechs.

The financial industry is one of the most regulated industries in the U.S. economy. From a lack of oversight before the 1929 stock market crash to a significant increase in regulations since the 1970s, the financial industry has many regulatory agencies overseeing it.

This comprehensive guide continues Luthor’s series on compliance. It explores the history of 20 major regulatory agencies impacting the financial industry, their responsibilities, and how each agency influences the operations of companies such as banks, RIAs, and fintechs.

From beginners to seasoned professionals, gain historical context and valuable insights into the regulatory agencies that have a profound impact on financial institutions in the United States.

The Evolution of Financial Regulation in the United States

Today’s complex regulatory environment has been decades in the making and has been shaped by economic depressions and recessions, as well as the financial market’s evolution. It is important to understand the history of the financial industry in the United States and the regulatory agencies that emerged during that history.

Let’s begin with some of the historical events that led to the creation of many of today’s financial regulatory agencies.

Early Regulatory Framework (Pre-1929)

Before the stock market crash of 1929, and the Great Depression that followed, the U.S. financial industry was not heavily regulated, with few regulatory agencies even existing.

The “National Bank Act of 1863” and the “Federal Reserve Act of 1913” were the most notable examples of federal oversight on the financial markets before 1929. These were enacted in response to panics in the market and aimed to prevent future crises. However, besides these two acts, the banking industry was governed mostly at the state level.

The securities market was even less regulated than banking during this time. According to Cornell Law School, stock brokers could essentially promise or say anything they wanted to sell securities to investors. Even if the promises made were “wholly fraudulent.” These tactics and the lack of oversight on them eventually led to the stock market crash in October 1929.

Post-Depression Reforms (1930s-1970s)

The stock market crash of 1929 and the difficult years of the Great Depression spurred regulatory reforms in the financial industry.

“The Securities Act of 1933” was enacted under the Federal Trade Commission (FTC) with the aim to prevent the deceitful practices that led investors astray prior to the 1929 crash. Then the “Securities Exchange Act of 1934” laid the foundation for the creation of the Securities and Exchange Commission (SEC).

The year 1933 also saw the enactment of “The Glass-Steagall Act” or more formally known as “The Banking Act of 1933.” This act required financial institutions to choose between commercial or investment banking and created the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits.

The Great Depression continued to have an impact on financial regulations. Following the end of the 1930s, the “Investment Advisers Act of 1940” brought new regulations to Registered Investment Advisers (RIAs). It required advisers to register with the SEC and set forth certain marketing rules to prevent misleading statements in financial marketing and advertising.

As the decades passed, new concerns in the financial industry appeared and required action from regulators. Commonly known as “The Bank Secrecy Act,” “The Currency and Foreign Transactions Reporting Act of 1970,” required banks to maintain records and report suspicious transactions or activity to appropriate authorities. The aim was to prevent the increased prevalence of money laundering, tax evasion, and the funding of terrorism.

Deregulation and Innovation (1980s-2000s)

With the Great Depression far in the rearview mirror, the end of the 20th century moved toward deregulation.

“The Financial Services Modernization Act of 1999” or “The Gramm-Leach-Bliley Act,” aimed to repeal many of the regulations set forth by the “The Glass-Steagall Act” of 1933, while still protecting consumers and their privacy.

The tech boom of these decades brought substantial innovations into the financial industry, requiring a reevaluation of the aging regulations.

Post-2008 Crisis Reform

The 2008 financial crisis was so significant that it was dubbed “The Great Recession.” The crisis can be blamed on the housing bubble, which saw many homebuyers taking on mortgages that they could not afford. It’s eerily similar to what led to the stock market crash of 1929, which saw investors taking on too much risk.

And just like after 1929, the 2008 financial crisis brought swift regulatory changes, most notably in “The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.” This act created reforms for the swaps market, which had not been regulated before this time. The “Dodd-Frank Act” also established the new regulatory agency, the Consumer Financial Protection Bureau (CFPB) and expanded the authority of existing regulatory agencies.

The Digital Era and Fintech Revolution

Since 2008, the rapid rise of new technologies in the financial space, such as cryptocurrency and blockchain has brought new regulatory challenges. Agencies, like the Consumer Financial Protection Bureau (CFPB), are adapting their regulations for enforcement on these new technologies, while new blockchain and cryptocurrency laws and regulations are being created.

Even financial institutions not associated with these new technologies are seeing a changing regulatory compliance landscape. The Financial Crimes Enforcement Network (FinCEN), under anti-money laundering regulations, has expanded the “financial institution” classification to include RIAs. This requires RIAs to keep extensive documentation and report any suspicious activity as if they were a bank.

Financial Regulatory Agencies and Their Responsibilities

The Federal Reserve System (The Fed)

The Federal Reserve System was established with “The Federal Reserve Act of 1913.” Well before the Great Depression of the 1930s, “The Fed,” as it has been known colloquially, was a response to financial panics including the significant banking panic of 1907.

The main responsibilities of the Federal Reserve are:

• Formulating and implementing the United States’ monetary policy.
• Regulating and overseeing bank holding companies, state-chartered member banks, and foreign banking organizations that operate in the U.S.
• Maintaining stability of the U.S. financial system and mitigating risk to the financial market. This was The Fed’s main focus when it was created in 1913.
• Providing financial services to depository institutions, such as banks, the U.S. government, and foreign official institutions.
• Promoting consumer protection and community development.

The Federal Reserve has a significant influence on the country’s financial markets. It makes decisions on the interest rates and monetary policies that have far-reaching impacts on banks. The Fed’s interest rate and monetary decisions affect the cost of funds, lending rates, and essentially all strategies that banks may enact.

In addition to governing interest rates and monetary policies, the Federal Reserve supervises member institutions, ensuring that they are operating safely, soundly, with adequate capital, and in compliance with financial regulations.

Office of the Comptroller of the Currency (OCC)

The Office of the Comptroller of the Currency predates even the Federal Reserve. Established during the American Civil War, the aim of the OCC was to regulate the national banking system.

The main responsibilities of the Office of the Comptroller of the Currency include:

• Chartering, regulating, and supervising all national banks and federal savings associations.
• Ensuring that banks are operating in a safe and sound manner, while providing fair access to financial services.
• Ensure that banks are complying with relevant laws and regulations.
• Setting rules and regulations that govern bank operations.
• Conducting regular examinations of banks and their operations.
• Enforcing laws and regulations against banks that are in non-compliance.

The OCC has oversight into the capital requirements, lending practices, and risk management of national banks and federal thrift institutions, such as residential mortgage lenders.

The “CAMELS” rating system is how the OCC evaluates a bank’s overall condition. CAMELS stands for:

• Capital Adequacy
• Assets
• Management Capabilities
• Earnings
• Liquidity
• Sensitivity

Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation was created in 1933 during the Great Depression. Its main purpose was to insure the deposits made to banks. In the beginning of the FDIC history, it originally insured bank deposits up to $2,500 per account. Today, however, it insures up to $250,000 per bank account.

The main responsibilities of the Federal Deposit Insurance Corporation are:

• Insuring deposits made to banks and savings associations.
• Examining and supervising state-chartered, non-Federal Reserve banks.
• Providing support to failed banks in order to mitigate the risk to the U.S. banking system and the Deposit Insurance Fund.
• Promoting awareness of deposit insurance and fair banking practices to consumers.
• Monitoring and addressing any potential risks to deposit insurance funds.

The FDIC requires banks to pay insurance premiums to it, comply with the regulations that it sets forth, and receive regulation evaluations into its operations.

Federal Financial Institutions Examination Council (FFIEC)

The Federal Financial Institutions Examination Council was established in 1979 with the “Financial Institutions Regulatory and Interest Rate Control Act.” The goal of the FFIEC is to create consistent and uniform standards for the evaluation and supervision of financial institutions.

The main responsibilities of the Federal Financial Institutions Examination Council are:

• Maintaining consistent principles, standards, and reports for the evaluation of financial institutions by federal regulatory agencies. 
• Providing guidance for maintaining consistency in the supervision of financial institutions.
• Conducting training for examiners who are employed by member regulatory agencies.
• Developing standardized reporting forms and systems.

The standards and recommendations affect how banks and other financial institutions must prepare for regulatory audits and evaluations.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission was a direct result of the 1929 stock market crash. At the time, the main goal of the SEC was to restore confidence and integrity in the stock market. 

Today, the main responsibilities of the Securities and Exchange Commission are:

• Regulating securities exchanges.
• Regulating broker-dealers and investment advisors.
• Regulating mutual funds.
• Enacting and enforcing securities laws.
• Overseeing the disclosure of information that relates to the stock market.
• Protecting investors from fraud and stock market manipulation.
• Ensuring corporate takeovers in the United States adhere to disclosure and securities regulations.

The SEC has a significant impact on various financial companies, from investment banks to broker-dealers to RIAs. The SEC requires report filing, comprehensive records, compliance programs, and adherence to fiduciary standards.

Office of Strategic Hub for Innovation and Financial Technology (FinHub)

Within the SEC is the Office of Strategic Hub for Innovation and Financial Technology. Known as FinHub, this office was created in 2018 in response to the rapid technological advancement in the financial sector. It oversees the country’s fintech such as cryptocurrency, blockchain, and the use of AI in finance. 

The main responsibilities of the Office of Strategic Hub for Innovation and Financial Technology include:

• Providing a hub for consumers and industry leaders to collaborate with the SEC on advancements in fintech.
• Serving as a point-of-contact for U.S. and foreign regulators about emerging financial technology.
• Being a publisher of information about the SEC’s efforts in the fintech sector.

While FinHub may not enforce SEC regulations, it guides fintech companies in remaining compliant with regulations.

Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority was not established by the U.S. government and is a non-profit, self-regulatory organization, or SRO. However, FINRA is authorized by Congress to oversee brokerage firms.

The main responsibilities of FINRA are:

• Regulating all brokerage firms in the U.S.
• Establishing and enforcing rules that govern broker-dealers.
• Ensuring brokerage firms are in compliance with FINRA rules.
• Advocating for transparency in the exchange markets.
• Educating consumers about investing.

FINRA has a significant impact on broker-dealers. To even be authorized to be a broker, one must first register with FINRA and the organization has oversight in evaluating broker-dealers, enforcing sanctions, and taking a role in any arbitration between investors and brokerages.

Commodity Futures Trading Commission (CFTC)

Replacing 1936’s Commodity Exchange Authority, the Commodity Futures Trading Commission was created in 1974. The CFTC’s focus is on derivatives trading.

The main responsibilities of the Commodity Futures Trading Commission are:

• Regulating the U.S. commodity futures and options markets.
• Protecting investors and others from fraud, manipulation, and abusive practices.
• Ensuring that the clearing process maintains financial integrity.
• Promoting transparent, open, and competitive markets.
• Establishing risk management standards to make the financial markets safer.

The CFTC has a direct impact on any financial institution that operates in derivatives markets. These institutions must be registered with the CFTC, report their transactions to the commission, maintain their records, and implement compliance procedures at their organization.

National Futures Association (NFA)

Similarly to FINRA, the National Futures Association is a non-profit, self-regulatory organization. The NFA has oversight on the derivatives industry, such as on-exchange traded futures, retail off-exchange foreign currency, and Over-The-Counter derivatives.

The main responsibilities of the National Futures Association includes:

• Regulating the firms and any individuals operating in the derivatives industry.
• Maintaining a comprehensive registration process.
• Protecting investors of derivatives.
• Enforcing NFA rules, as well as CFTC regulations.
• Assisting with arbitration and mediation.
• Educating industry professionals and the public about the derivatives markets.

Any financial company or professional in the derivatives industry must be registered with the NFA and be in compliance with its rules. The NFA conducts evaluations into its members to protect customers and ensure professional business practices.

Consumer Financial Protection Bureau (CFPB)

The Consumer Financial Protection Bureau was established in direct response to the 2008 financial crisis. That crisis was brought about by the housing bubble, in which many mortgage lenders provided loans to homebuyers who simply could not afford a mortgage. This led to substantial foreclosures across the country, and a response in 2010 with the passing of the “Dodd-Frank Wall Street Reform and Consumer Protection Act.” The CFPB focuses on lending practices and fair treatment of consumers.

The main responsibilities of the Consumer Financial Protection Bureau are:

• Enacting rules for consumer financial services and products.
• Ensuring compliance with consumer financial laws and regulations.
• Preventing unfair, deceptive, and abusive tactics in the consumer finance sector.
• Receiving and processing complaints from consumers.
• Promoting financial knowledge to consumers.

The CFPB has a significant impact on various financial companies. This includes banks, lenders, credit unions, and even debt collection agencies. These companies must comply with regulations about lending, disclosures, and fair treatment of consumers that the CFPB has established and enforced.

Federal Trade Commission (FTC)

The Federal Trade Commission has been around since 1914, and today, has a broad scope across multiple industries in order to protect consumers. In the financial industry, the FTC has jurisdiction over non-bank financial companies like payday lenders, debt collection agencies, and credit reporting agencies.

The main responsibilities of the Federal Trade Commission are:

• Preventing anticompetitive, deceptive, and unfair business practices that affect consumers, whether within or outside finance.
• Informing consumers about the competitive process.
• Enforcing consumer protection laws, within and outside the financial industry.
• Managing complaints from consumers.
• Conducting investigations into companies that may be violating laws and enacting sanctions on those companies.

For non-bank financial institutions, the FTC has significant influence on how they conduct business.

Financial Crimes Enforcement Network (FinCEN)

The Department of the Treasury created the Financial Crimes Enforcement Network in 1990. Its purpose was to better support the initiative of “The Currency and Foreign Transactions Reporting Act of 1970,” which was tackling money laundering and financial crimes.

The main responsibilities of the Financial Crimes Enforcement Network are:

• Collecting and analyzing data from financial transactions in order to fight money laundering, terrorist funding, and similar financial crimes.
• Enforcing “The Currency and Foreign Transactions Reporting Act of 1970” or the “Bank Secrecy Act.”
• Establishing regulations.
• Assisting in law enforcement investigations related to financial crimes.
• Assisting foreign financial intelligence agencies.

FinCen’s regulations and actions have an impact on various financial institutions including banks, RIAs, and fintech companies.

Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control has had a storied history, dating as far back as the War of 1812. During that war, the United States restricted trade with Great Britain. Despite being active as far back as 1812, the official OFAC was established until 1950.

The main responsibilities of the Office of Foreign Assets Control include:

• Enforcing financial sanctions against countries, regimes, entities, and even prominent leaders.
• Seizing assets of those sanctioned entities and leaders.
• Prohibiting specific types of financial transactions.
• Providing guidance to financial institutions on remaining compliant with sanctions.

OFAC’s rulings have a direct impact on who financial institutions can do business with. These companies must remain compliant with sanctions and report any blocked or rejected transactions to OFAC regulatories.

Internal Revenue Service (IRS)

The beginnings of the tax collection system that eventually became the Internal Revenue Service date back to 1862, when President Lincoln signed a law to raise funding for the Civil War. Though the IRS oversees all taxpayers, within the financial industry, the IRS ensures that financial institutions are compliant with tax and reporting requirements.

The main responsibilities of the Internal Revenue Service are:

• Enforcing U.S. tax laws and regulations.
• Collecting taxes from businesses (and individuals).
• Investigating potential tax evasion and fraud.

Banks and other financial institutions play an important role for the IRS, acting as intermediaries within the tax collection and reporting process.

New York Department of Financial Services (DFS)

While this guide has focused on national agencies, the New York Department of Financial Services is influential far beyond the state because of New York’s central role in the financial industry. Financial companies operating in New York must be in compliance with regulations set forth by New York’s DFS.

The main responsibilities of the New York Department of Financial Services include:

• Regulating financial companies that operate in New York State and regulating their services and products.
• Supervising and licensing all financial institutions that want to operate in New York State, even foreign banks.
• Enforcing New York State insurance and banking laws.
• Protecting New York consumers and markets from fraud.
• Issuing financial regulations for the State of New York.

Even for financial companies not operating in New York State, the New York Department of Financial Services has significant influence on them. Certain DFS’ regulations are more stringent than federal regulations and have set benchmarks for other state and federal regulatory agencies.

Federal Housing Finance Agency (FHFA)

Formed in 2008, the Federal Housing Finance Agency replaces the Office of Federal Housing Enterprise Oversight and the Federal Housing Finance Board. The FHFA oversees affordable housing and home financing in the United States.

The main responsibilities of the Federal Housing Finance Agency are:

• Regulating and supervising Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.
• Supporting the financing of housing and supporting affordable housing.
• Providing oversight to conservatorship operations.
• Establishing underwriting and reporting standards for Fannie Mae and Freddie Mac partners.

The FHFA has less influence on financial institutions than many of the other regulatory agencies in this list. It focuses primarily on banks and mortgage lenders that are selling loans to Fannie Mae and Freddie Mac.

National Association of Insurance Commissioners (NAIC)

While not a federal regulatory agency, the National Association of Insurance Commissioners covers the entire country. It sets the standards and supports regulations for how insurance products can be sold, marketed, and provided.

The main responsibilities of the National Association of Insurance Commissioners include:

• Setting the standards for insurance regulation and oversight across all 50 states.
• Advises state regulators on insurance laws and regulations that those agencies can adapt.
• Providing centralized resources.
• Representing the interests of state insurance regulators on a nation and international scale.

Any bank or broker-dealer that markets and sells insurance products will have to adhere to regulations on the state level that were most likely influenced by the NAIC’s guidance.

Bank for International Settlements (BIS) and the Basel Committee on Banking Supervision (BCBS)

An international organization, the Bank for International Settlements and its Basel Committee on Banking Supervision, is based in Switzerland and provides standards for banks on a global scale.

The main responsibilities of the Bank for International Settlements’ Basel Committee are:

• Setting standards for banking regulation around the world.
• Establishing banking minimum capital requirements through the Basel Accords.
• Inspiring cooperation between banking supervisory authorities from around the world.

While this committee is global, U.S. banking regulatory agencies borrow directly from the international standards that BCBS establishes. That means U.S. banks and how they manage their capital and risks is influenced by the BIS.

Society for Worldwide Interbank Financial Telecommunication (SWIFT)

The Society for Worldwide Interbank Financial Telecommunication is not a regulatory agency, but instead is a cooperative. Its purpose is to provide secure messaging for global financial transactions.

The main responsibilities of the Society for Worldwide Interbank Financial Telecommunication include:

• Providing secure messaging for financial transactions across the globe.
• Standardizing and securing communication between global financial institutions.
• Providing services for financial crime compliance.

Any United States-based financial institution that is conducting business with international payments and messaging must rely on SWIFT.

Cybersecurity and Infrastructure Security Agency (CISA)

Not just for financial institutions, the Cybersecurity and Infrastructure Security Agency was established in 2018 to bolster the United States’ security of its internet and infrastructure.

The main responsibilities of the Cybersecurity and Infrastructure Security Agency are:

• Understanding, managing, and reducing the risks to the nation’s cyber and physical infrastructure.
• Providing cybersecurity tools and response services to cybersecurity incidents.
• Improve the nation’s capacity to defend itself and its citizens against cyber threats.

While the CISA isn’t focused just on the financial industry, its guidance and alerts assist financial institutions, which are critical infrastructure.

Conclusion

With 20 regulatory agencies listed in this guide, it’s clear to see that the financial sector is covered by a complex web of oversight and regulatory overlap. Navigating through this web can be difficult for compliance teams. However, by understanding the different agencies governing financial institutions, the background of each agency, and what their responsibilities are, compliance departments can feel more confident that they are mitigating their compliance risks.

To further assist your organization in remaining compliant with the numerous regulations in finance, leverage the power of Luthor. Luthor automates your marketing compliance, unblocking your team to create, review, and publish all of its marketing content, at scale. From long-form articles to 140-character social media posts, Luthor ensures everything your team publishes is within compliance regulations. Book a demo with the Luthor team today to unblock your marketing team, automate your compliance, and scale faster.

FAQs About Regulatory Agencies

How do I determine which regulatory agencies have jurisdiction over my financial company? 

To determine which agencies govern your company’s regulatory compliance, look at:

• Your company’s charter type.
• Your company’s organizational structure.
• Your company’s specific business activities.

For instance, here are some common financial institutions and which agencies would most likely govern them:

• National banks: Regulated mostly by the OCC.
• State-chartered banks: Regulated by state banking agencies and either the Federal Reserve, if the bank is a member, and the FDIC, if the bank is not a member.
• Securities: Regulated by SEC and FINRA.
• Derivatives: Regulated by the CFTC.

To determine your company’s regulatory obligations, consult with regulatory counsel.

What is the difference between regulations, guidance, and supervisory expectations? 

• Regulations: These are legally binding rules.
• Guidance: Recommendations and interpretations to assist with regulations, but are not legally binding rules.
• Supervisory expectations: Standards that are set forth by regulatory agencies through education, manuals, and actions, which examiners then apply to their supervision processes. 

How frequently should we expect regulatory examinations?

The frequency of regulatory examinations varies. Large corporations often need continuous monitoring, while smaller organizations may have regulatory examinations every 12 months to 18 months.

In addition, financial institutions with previous compliance challenges or a lower CAMELS rating often require regulatory examinations more often.

What elements should an effective compliance management system include? 

Include the following for a robust compliance management system:

• Board and management oversight.
• A compliance program, including:
  
  • Policies
  • Procedures
  • Employee training
  • Monitoring
  • Corrective action
• A compliance review and audit function.

How should we approach conflicting or overlapping regulatory requirements?

It is important that you document the conflict and consult with regulatory counsel. Also consult with regulatory agencies for guidance. A smart approach is to follow the more restrictive requirement.

How can we stay current with regulatory changes?

Keeping yourself and your staff educated and informed is the best way to stay current on evolving regulations. You can stay informed with:

• Newsletters and alerts directly from regulatory agencies.
• Industry associations.
• Webinars and conferences.
• Regulatory intelligence services.
• Compliance tools like Luthor, which continuously monitors marketing materials against current regulations.
• Delegate an individual within your compliance department whose primary role is to remain current on regulations.

What are the main regulatory considerations for financial marketing materials?

Marketing materials created by financial companies have to follow strict compliance regulations for accuracy and honesty. For instance, the SEC has marketing rules for investment advisers, which include:

• The prohibition of misleading statements.
• Performance advertising standards that require any past performance data to be backed by disclaimers.
• Strict conditions about the use of client testimonials and endorsements.

How do UDAAP (Unfair, Deceptive, or Abusive Acts or Practices) considerations apply to marketing?

• Unfair: Financial marketing cannot cause substantial injury that consumers cannot avoid in a reasonable manner.
• Deceptive: The marketing cannot mislead consumers regarding product or service terms, benefits, or the costs of the product or service.
• Abusive: Marketing cannot take advantage of consumer lack of knowledge or their inability to protect their own interests.

What aspects of digital marketing require special regulatory attention?

Digital marketing has only increased the work of regulatory compliance for companies. Important aspects to consider for your organization’s digital marketing include:

• Making disclosure and disclaimers clear and conspicuous even on mobile devices.
• Every piece of social media content must be reviewed, even reposts.
• Targeted advertising must adhere to regulations.
• Your website must maintain accessibility.
• Privacy requirements.
• Maintaining records of all marketing materials and their compliance with regulations.

How are regulatory sandboxes being used in financial regulation?

Regulator sandboxes are a safe way for fintech companies to test their products and services for adherence to regulations, without concern of penalties or sanctions from regulatory agencies. The CFPB provides a disclosure sandbox program that provides companies with a way to innovate while maintaining consumer protection.

What regulatory challenges are specific to cryptocurrency and digital asset businesses? 

Cryptocurrency and digital assets have evolved quickly, which has provided a challenge for regulatory agencies. Many fintech companies in this space have difficulty even determining which agency has governance over them.

How are regulators approaching partnerships between traditional financial institutions and fintech companies?

At this time, regulatory agencies believe that banks should be managing the risks of their fintech partners. However, there are calls for fintechs to take ownership of their own compliance risk management when working with banks.

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