The Investment Bank Regulation System in the United States
The characteristics of the investment bank regulation system in the United States can be viewed from the perspective of legislation or from the perspective of regulatory bodies.
From the perspective of legislation, the United States has a set of coordinated and constantly improving federal level laws and regulations that set standards for investment banks. They include the Securities Act, the Securities Exchange Act, the Investment Company Act, the Investment Advisor Act, and the Securities Investor Protection Act. These acts form the basis for government regulation of investment banks and the code of conduct by which investment banks must abide.
From the perspective of regulatory bodies, the United States has set up a specialized federal regulatory organization: the Securities Exchange Commission (SEC). The commission includes five members appointed by the president and approved by the Senate. All five are full-time members. They are not allowed to hold other public offices concurrently nor engage in securities trading directly or indirectly. The SEC is directly responsible to Congress. It is an independent organ with complete quasi-legislative and quasi-judicial functions. It regulates investment banks and their behaviors according to law, without inference from the president or other government agencies. In order to ensure the fulfillment of its duties and functions, the SEC has a large and close-knit organizational system that consists of four departments, 18 divisions including 14 offices, as well as several regional branches (agencies). In addition, exchanges and securities traders associations nationwide are under the leadership of the SEC. Obviously, the SEC is the most important regulatory body in the investment bank regulation system of the United States. Full authorization from the government ensures that it has enough authority to safeguard the enforcement of laws in the operation of investment banks. Therefore, the SEC is the symbol of the government regulation system of the United States.
The government regulation system as represented by the United States has the following advantages:
- Emphasis is put on legislative regulation. The activities of the regulator and the regulated are both put on a track of legalization, giving solemnity, fairness, and authority to regulative activities.
- As the all-important leading regulatory body in regulatory activities, the regulatory agencies of the government are above the fray of the participants of the capital market. This enables them to better represent and stand for the fairness, justice, and transparency principles in the market and pay greater attention to the protection of investor interests. This is conducive to orderly competition and coordinated development in the investment banking industry.
However, the government regulation system falls short in the following aspects:
- Legislative regulation tends to be too rigid and inflexible. As a result, investment banks often fall victim to overregulation and excessive interference from the government, which runs counter to virtuous competition and innovation among investment banks.
- The distance between the regulators and the market means they are often not able to respond appropriately and timely to changes in the market. The regulators tend to be either absent or overstepping, thus affecting regulation efficiency to some extent.