Which state entity oversees the regulation of securities representatives and mortgage brokers?

Which state entity oversees the regulation of securities representatives and mortgage brokers?

Financial Services Commission

A body consisting of Florida's governor and Cabinet, the Commission appoints two officials to handle the regulation of banking, securities and insurance.

Financial Regulation

The Office of Financial Regulation (OFR) is responsible for supervising state-chartered banks, credit unions, savings associations, and international bank agencies, and licenses and regulates non-depository finance companies and the securities industry. The office defends the public from investment and securities fraud, and protects Florida's citizens against entities that violate state laws and rules. The OFR has three Divisions and one Bureau that oversee and regulate financial enterprises and individuals, such as mortgage loan originators, securities industry participants, consumer finance companies, money transmitters, foreign currency exchangers and payday lenders.

Insurance Regulation

The Office of Insurance Regulation (OIR) has primary responsibility for regulation, compliance and enforcement of statutes related to the business of insurance and is entrusted with the monitoring of statewide industry markets. Bureaus within the Division are organized into centers of regulatory expertise related to life and health, property and casualty, specialty lines and other regulated insurance entities. It is within the Office of Insurance Regulation that the mission of public protection is implemented through regulatory oversight of company solvency, policy forms and rates, market conduct performance and new company entrants to the Florida market.

The Department of Financial Services' Role

A compromise to having all aspects of the financial and insurance industries regulated by appointed officials versus a statewide-elected official, was to split the regulatory responsibilities between this Agency and the Financial Services Commission. Florida's Chief Financial Officer serves on the Commission; regulates insurance agents; is court appointed as the receiver or rehabilitator of insolvent insurers; administers the workers' compensation insurance act; appoints the Insurance Consumer Advocate, and is administrator of the Division of Investigative and Forensic Services.

The Washington State Department of Financial Institutions regulates:

State Chartered Depository Institutions
Banks
Credit Unions
Savings Banks
Foreign Bank Branch
Trust Companies
Non Depository Institutions and Persons
Check Cashers and Sellers
Consumer Loan Companies
Escrow Agents
Money Transmitters
Mortgage Brokers
Mortgage Loan Originators
Payday Lenders
Securities Industry
Registered Business Opportunities
Registered Franchise Offerings
Registered Securities Offerings
Investment Advisers
Investment Adviser Representatives
Securities Broker-Dealers
Securities Salespersons

Financial regulations are laws that govern banks, investment firms, and insurance companies. They protect you from financial risk and fraud. But they must be balanced with the need to allow capitalism to operate efficiently.

Learn about financial regulations, how they help and sometimes hamper economic growth, and the regulators that ensure these laws are enforced.

Key Takeaways

  • Financial regulations protect consumers’ investments.
  • Regulations prevent financial fraud and limit the risks financial institutions can take with their investors’ money.
  • Financial regulators oversee three main financial sectors: banking, financial markets, and consumers.

Why Financial Regulations Are Important

Regulations protect consumers from financial fraud. These include unethical mortgages, credit cards, and other financial products.

Effective government oversight prevents companies from taking excessive risks. Some have concluded, for example, that tighter regulations would have stopped Lehman Brothers from engaging in risky behavior, a change that could have prevented or curbed the 2008 financial crisis.

Laws like the Sherman Anti-Trust Act prevent monopolies from taking over and busing their power. Unregulated monopolies have the freedom to gouge prices, sell faulty products, and stifle competition.

Note

Without regulation, a free market creates asset bubbles. That occurs when speculators bid up the prices of stocks, houses, and gold. When the bubbles burst, they create crises and recessions.

Government protection can help some critical industries get started. Examples include the electricity and cable industries. Companies wouldn't invest in high infrastructure costs without governments to shield them. In other industries, regulations can protect small or new companies. Proper rules can foster innovation, competition, and increased consumer choice.

Regulations protect social concerns. Without them, businesses will ignore damage to the environment. They will also ignore unprofitable areas such as rural counties.

When Regulations Pose a Threat

Regulations are a problem when they inhibit the free market. The market is the most efficient way to set prices. It improves corporate efficiency and lowers costs for consumers. In the 1970s, wage-price regulations distorted the market and were one significant factor behind stagflation.

Regulations can damp economic growth. Companies must use their capital to comply with federal rules instead of investing in plants, equipment, and people.

Businesses create profitable products in unforeseen areas. Regulations aren't effective against new types of products like credit default swaps, but regulators keep up with the dangers these innovative products often introduce.

Finally, some industry leaders become too cozy with their regulators. They influence them to create rules that benefit them and stifle competition.

Who Regulates the Financial Industry?

There are three types of financial regulators.

Banking

Bank regulators perform four functions that help to strengthen and maintain trust in the banking system—and trust is critical to a functioning system. First, they examine banks' safety and soundness. Second, they make sure the bank has adequate capital. Third, they insure deposits. Fourth, they evaluate any potential threats to the entire banking system.

The Federal Deposit Insurance Corp. (FDIC) examines and supervises more than 5,000 banks, a significant portion of the banks in the U.S. When a bank fails, the FDIC brokers its sale to another bank and transfers depositors to the purchasing bank. The FDIC also insures savings, checking, and other deposit accounts.

Note

The Federal Reserve oversees bank holding companies, members of the Fed Banking System, and foreign bank operations in the U.S.

The Dodd-Frank Wall Street Reform and Consumer Protection Act strengthened the Fed's power over financial firms. If any become too big to fail, they can be turned over to the Federal Reserve for supervision. The Fed is also responsible for the annual stress test of major banks.

The Office of the Comptroller of the Currency supervises all national banks and federal savings associations. It also oversees national branches of foreign banks. The National Credit Union Administration regulates credit unions.

Financial Markets

The Securities and Exchange Commission (SEC) is at the center of federal financial regulations. It maintains the standards that govern the stock markets, reviews corporate filing requirements, and oversees the Securities Investor Protection Corporation.

The SEC also regulates investment management companies, including mutual funds. It reviews documents submitted under the Sarbanes-Oxley Act of 2002. Most important, the SEC investigates and prosecutes violations of securities laws and regulations. 

Note

Another regulating body, the Securities Investor Protection Corporation (SIPC) helps protect financial investments. The SIPC insures customers' investment accounts in case a brokerage company goes bankrupt.

The Commodity Futures Trading Commission regulates the commodities futures and swaps markets. Commodities include food, oil, and gold. The most common swaps are interest-rate swaps. The unregulated use of credit default swaps helped cause the 2008 financial crisis.

The Federal Housing Finance Agency was established by the Housing and Economic Recovery Act of 2008. It supervises the secondary mortgage market and oversees Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System.

The Farm Credit Administration is the largest U.S. farm lender and oversees the Farm Credit System.

Consumers

The Consumer Financial Protection Bureau (CFPB) is under the U.S. Treasury Department. It makes sure banks don't overcharge for credit cards, debit cards, and loans. It requires banks to explain risky mortgages to borrowers. Banks must also verify that borrowers have an income.

List of Major Financial Regulations

In 1933, the Glass-Steagall Act regulated banks after the 1929 stock market crash. In 1999, the Gramm-Leach-Bliley Act repealed it. The repeal allowed banks to invest in unregulated derivatives and hedge funds, making it possible for banks to use depositors' funds for their own gains.

In return, the banks promised to invest only in low-risk securities. They said these would diversify their portfolios and reduce the risk for their customers. Instead, financial firms invested in risky derivatives to increase profit and shareholder value.

Note

Many have argued that it was because of such deregulations that financial firms such as Bear Stearns, Citigroup, and American International Group Inc. required billions in bailout funds in 2008.

The Sarbanes-Oxley Act of 2002 was a regulatory reaction to the corporate scandals at Enron, WorldCom, and Arthur Anderson. Sarbanes-Oxley required top executives to personally certify corporate accounts. If fraud was uncovered, these executives could face criminal penalties. At the time, many were afraid this regulation would deter qualified managers from seeking top positions.

Dodd-Frank was put in place to prevent a repeat of the 2008 financial crisis. It creates an agency to review risks threatening the financial industry and gives the Federal Reserve the authority to regulate large banks before they become "too big to fail." It regulates hedge funds, derivatives, and mortgage brokers. The Volcker Rule bans banks from owning hedge funds or using investors' funds to trade derivatives for their own profit. Dodd-Frank also created the CFPB.

How Regulations Affect the Markets

One of the arguments against regulations is that they can have unintended consequences. For example, in October 2013, the Federal Reserve required big banks to add more liquid assets. That forced them to buy U.S. Treasury bonds so they could quickly sell them if another financial crisis loomed. 

As a result, banks increased their holdings of bonds. In 2014, the increase in demand pushed ​yields on long-term Treasuries down.  Lower interest rates spurred lending but reduced demand for stocks. Bonds compete with the stock market for investors' dollars. Although their returns are lower, they offer more security.

Trump's Regulatory Rollbacks

In 2018, President Donald Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act, which eased regulations on small banks.

The rollback meant the Fed can't designate these banks as too big to fail. They also aren't subject to the Fed's "stress tests." And they no longer have to comply with the Volcker Rule. Now banks with less than $10 billion in assets can, once again, use depositors' funds for risky investments.

What are some different types of financial regulations?

The Congressional Research Service found that financial regulations fall into several different categories: safety and soundness, transparency and disclosure, setting standards, competition, and price and rate regulations.

Where do the two major political parties stand on financial regulations?

As a matter of policy, Democrats generally advocate more regulations. Republicans typically promote deregulation.

Do states have their own financial regulations?

Yes, states have their own financial laws and regulators in place. For example, each state has an insurance commissioner who oversees the insurance industry in the state.

Who regulates mortgages in Florida?

The Office of Financial Regulation (OFR) is responsible for supervising state-chartered banks, credit unions, savings associations, and international bank agencies, and licenses and regulates non-depository finance companies and the securities industry.

Who oversees the Florida Office of financial Regulations?

The OFR reports to the Financial Services Commission made up of Governor Ron DeSantis and the members of the Florida Cabinet: Chief Financial Officer Jimmy Patronis, Attorney General Ashley Moody and Agriculture Commissioner Nikki Fried.

What does the Florida Office of Financial Regulation do?

The mission of the Office of Financial Regulation (OFR) is to protect the citizens of Florida, promote a safe and sound financial marketplace, and contribute to the growth of Florida's economy with smart, efficient and effective regulation of the financial services industry.

Which entity approves the insurance policy forms used in Florida?

Individual short-term policy forms and rates must be filed and approved by the Florida Office of Insurance Regulation (OIR) prior to being marketed.