Fund Regulators You Need to Know

Know the regulators, know the rulebook.

When I started my first fund, the thing that caused me the most anxiety was the legal side of things…

Who do I report to? How? When??

I was lost, confused, and stressed! One day I was venting to one of my mentors and he said,

“Look Bridger, I know it can be intimidating, but I promise you it’s not as bad as it looks!”

When starting your fund, don’t get overwhelmed!

There are regulators and regulations that you need to know about…but once you understand them, it’s not as bad as it seems!

Fund Regulations, while cumbersome, are actually there to protect investors. The laws set in place help everyone when it come to trusting, and investing in, the financial markets.

Different funds are subject to different regulations depending on type of business, size, investor type…ect.

Read through these brief explanations so you’ll be able to hold your own when it comes to the rules and regulations of your fund!

SEC (Securities and Exchange Commission)

The SEC is essentially an independent federal agency that holds primary responsibility for enforcing federal securities laws.

The SEC regulates the securities industry, the nation’s stock and options exchanges, and other electronic securities markets through establishing the:

  • Securities Act of 1933
  • Securities Exchange Act of 1934
  • Investment Company Act of 1940 
  • Investment Advisers Act of 1940 
  • The Sarbanes Oxley Act of 2002
  • The Dodd-Frank Act of 2010

Here is a great resource to learn more!

CFTF (Commodity Futures Trading Commission) 

The CFTF is an independent federal agency that regulates, together with the SEC, many aspects of the derivatives market. It’s stated mission is to,

“protect market users and the public from fraud, manipulation, and abusive practices in the sale of commodity and financial futures and options, and to foster open, competitive option markets.”

U.S. Treasury Department 

The Treasury Department is the executive agency responsible for promoting economic prosperity and ensuring the financial security of the United States.

The Department advises the President on economic and financial issues that will encourage sustainable economic growth and foster improved governance in financial institutions and markets. 

FSOC (Financial Stability Oversight Council) 

This is a council that has authority to identify and monitor systemic risks to the U.S. financial system.

To eliminate expectations that any American financial firm will become “too big to fail” and corrupts the market, the FSOC sets up certain rules by responding to emerging threats to U.S. financial stability.

Talk to a lawyer before setting up your fund!

The Federal Reserve System 

Ever heard of “The Fed”. Yup, that’s them.

The Federal Reserve serves as the central banking system for the U.S. The Fed oversees monetary policy and regulates the U.S. banking system, while also monitoring systemic risks in the financial marketplace.

The Fed is the regulator tasked with enforcing the enhancing regulatory framework governing systemically important financial institutions (SIFI).

FDIC (The Federal Deposit Insurance Corporation)

Is an agency created by Congress to help guarantee the stability of the financial system. The FDIC helps promote confidence by insuring bank deposits of $250,000 and over.

When an institution – including non-bank entities – fails, the FDIC decides what is to be done with the assets. Most often, the FDIC engages in orderly liquidation, or the sale of deposits or loans to another institution.

The FDIC is independent and is run by five directors who are appointed by the President and confirmed by the Senate. 

State Regulators

Each state in the U.S. has defined financial services regulators who regulate financial services markets and participants, to the extent not preempted by Federal law.

Additionally, many state Attorneys Generals have some oversight authority, including general anti-fraud authority.

Hedge fund managers with less than $100 million in assets under management (AUM) are regulated by the state that your headquarters are located!

NFA (National Futures Association)

Is a self-regulatory organization (SRO) which regulates the $330 billion managed futures industry.

Membership in NFA is mandatory for the more than 4,200 firms and 55,000 individuals trading in the marketplace. 

Make sure that doesn’t include you!

FINRA (Financial Industry Regulatory Authority)

FINRA is an SRO for broker-dealers and certain stock exchanges. It performs financial regulation of brokerage firms and registered securities representatives

…see? Wasn’t too bad, huh?

Overall, it’s just important to try to go in as educated as possible. Complete your due diligence and you’ll reap the rewards.

Good luck!

If you have any further questions, you know where to find me.

Thanks for the read!

Bridger Pennington

DISCLAIMER: This content is for educational and informational purposes only. It is not to be taken as tax, financial, or legal advice. You should always consult a legal professional before taking action. Furthermore, this is not a recommendation to buy or sell any security. The content is solely just the opinion of the authors.

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