Banking and Securities Regulation and Agency Enforcement Authorities

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

The federal bank regulatory agencies—the Office of the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, and the
Office of Thrift Supervision—have extensive authority to enforce various legal and regulatory
standards with respect to the banking institutions that they supervise. Similarly, the Securities and
Exchange Commission (SEC) has a wide range of tools to enforce the securities laws. This report
provides a brief sketch of these authorities and identifies the organizational entities within each
agency that Congress assigns enforcement responsibilities. It includes a table comparing the
formal enforcement tools that the banking agencies may use with those of the SEC. This report
will be updated as legislative activity warrants.

Backgr ound ..................................................................................................................................... 1
An Overview of Banking and Securities Regulation.......................................................................2
Banking ........................................................................................................................ ............. 2
Securi ti es ..................................................................................................................... .............. 3
Major Enforcement-Related Statutes...............................................................................................4
Banking ........................................................................................................................ ............. 4
Securi ti es ..................................................................................................................... .............. 5
Organization of Enforcement Programs..........................................................................................6
Banking ........................................................................................................................ ............. 6
Securi ti es ..................................................................................................................... .............. 7
Comparison of Enforcement and Compliance Tools.......................................................................8
For Further Reading......................................................................................................................10
Tables
Author Contact Information...........................................................................................................11

In the United States, following several decades of divergence, the businesses of commercial ¹
banking and securities activities have converged. Yet the regulatory framework for them, crafted ²³
largely in the 1930s, remains mainly under different statutory roofs. This report summarizes the
enforcement and compliance programs of federal banking regulators and those of the Securities
and Exchange Commission (SEC). It begins by discussing the key objectives of banking and
securities regulation, which shed light on why enforcement programs differ. There follow brief
overviews of the statutory basis for enforcement, the major enforcement tools, and, finally, how
regulators organize enforcement programs.
This report focuses on the primary goals of bank and securities regulation respectively. Banks are
to be run in a safe manner, seeking to avoid risk and thus losses. Their regulation is largely in the
background, “opaque.” Although banking operations are subject to penetrating examinations by
federal regulators, agencies do not make most of the details public. The SEC, on the other hand,
requires securities firms and securities issuers to disclose various details of their operations,
including all material information that may generate losses as well as expected profits. In contrast
to bank regulation, therefore, SEC regulation of securities businesses may be labeled
“transparent,” that is, although sources of volatility are acceptable in the industry, they must be
adequately and accurately revealed or disclosed.
In both sectors, other goals are promoted by industry standards or self-policing and by
government regulation. Among these are the following: business continuity planning in case of ⁴
natural and unnatural (terrorist) disasters that could weaken operations; preventing use of ⁵
financial institutions as conduits for money laundering or terrorist financing; providing consumer
protection against fraud and misconduct; safeguarding data security and the privacy of customer
information; and supervising technological service providers. Banking and securities regulators
and institutions have long cooperated, both nationally and internationally, informally and
formally, and share cooperative arrangements of many kinds, often extending beyond U.S. ⁶
borders.

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Banking is one of the most heavily regulated businesses in the United States.⁷ The reasons for this
lie in the economics of banking. A typical bank balance sheet features long-term assets (loans and
investments) and short-term liabilities (deposits). This means that banks face liquidity problems if
depositors suddenly choose to withdraw their funds. Furthermore, a run on a single bank can
become an industry-wide problem, if cautious depositors at otherwise healthy banks—
understanding that only some withdrawal claims can be satisfied—decide to get in line early.
Banks are monitored closely through regulatory systems that require governmental chartering;
periodic reporting on virtually every aspect of their business; systematic examination and ⁸
supervision; independent auditing; and annual reports to shareholders, depositors and the public.
Under the dual banking system, banks may be chartered by a state government or by the federal
government.
Although the chartering authority—state or federal—prescribes the requirements that a banking
institution must meet with respect to the basic aspects of its business, an array of federal laws and
regulations provide for close federal supervision of nearly all depository institutions in the United
States. A major component of federal regulation of banking is the deposit insurance system. To
discourage runs on banks and reduce the risk of contagion, Congress began federal deposit
insurance during the Great Depression, following collapses of state-sponsored deposit guaranty ⁹
schemes. Because under the deposit insurance program, the federal government assumes part of
the financial risk of bank failure, federal law requires that banking regulators have access to
confidential business data and gives them broad powers to assure that the managers of insured
depository institutions operate them in a safe manner.
Nearly every aspect of the operation and management of an insured institution is subject to close
regulatory supervision. In an economic sense, bankers and regulators are business partners: a
bank that becomes insolvent is not just a business failure; it also represents a failure of regulation.
As vigilant as the regulators may be, bad business decisions are inevitable, as are downturns in
the economy that may result in negative effects flowing from risks that are otherwise acceptable.
In other words, depositories cannot completely avoid risks. With federal insurance of deposits,
however, comes a safety net that lessens the impact of bank failure on depositors and,
consequently, on the entire monetary economy.
Congress divides federal regulatory authority over banking institutions among five regulators.
The Federal Deposit Insurance Corporation (FDIC), besides administering the federally
guaranteed insurance fund that covers any insured deposit losses, regulates state-chartered banks
(and savings associations), except those belonging to the Federal Reserve System (FRS). The
Board of Governors of the FRS (Fed) regulates such “member banks.” The Office of the
Comptroller of the Currency (OCC) regulates federally-chartered “national banks.” The Office of
Thrift Supervision (OTS) regulates federally-chartered and state-chartered savings associations.

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Besides federal regulation, all state-chartered banking institutions are subject to state banking ¹⁰
laws and to supervision by state supervisory agencies. Federal regulators also have authority to ¹¹
monitor safety and soundness in various related organizations, known as bank “affiliates,”
which may be bank subsidiaries, bank service companies, or other entities related to the bank
through corporate family structures known as “holding companies.” Regulation of holding
companies and their subsidiaries depends on what kind of firm is at their core. The Fed regulates
bank-based holding companies; OTS regulates savings institution-based complexes; and the SEC, ¹²
securities-based “investment bank holding companies.”
The federal securities laws require companies that sell securities to the public to register with the
SEC. In contrast to bank regulation, however, the act of registration with the SEC does not mean
that the government has deemed a corporation’s securities to be a safe investment. Registration
documents, known as “prospectuses,” state in bold type at their beginning that these securities
have not been approved or disapproved by the SEC, and any representation to the contrary is a
criminal event. The prospectus for even a high-quality stock or bond issue sets forth a long list of
risk factors, some of which are unlikely to occur, while others such as weather, labor cost, and
raw material conditions are intuitively obvious. In fact, the standard prospectus for a high-yield
(junk) bond offering usually includes statements to the effect that it is highly unlikely that the
issuing corporation will be able to pay interest on the bonds, let alone repay the principal. Under
federal securities law, such an offer is entirely legal if all material information is fully and
accurately disclosed to the public. All parties concerned expect the value (price) of traded
securities to fluctuate, unlike bank deposits of fixed value.
In other words, there is no securities law term equivalent to safety and soundness, the central
notion of banking regulation. No one sees failure of a publicly-traded corporation or the decline
of its share price as a SEC failure if the firm has disclosed all material risks fully and accurately.
The SEC seeks to protect investors from fraud, not risk. Banking regulation transfers the risk of
bank failure, including any failure resulting from fraud, from the customer to the government.
The SEC also regulates and requires registration of broker/dealers, investment advisers, mutual
fund operators, and other members of the securities industry. Although the SEC exercises
regulatory authority over the securities industry, its authority is somewhat limited. An illustrative
comparison is between the capital requirements imposed upon banks and the SEC’s net capital
rule, which requires brokerage firms to maintain a minimum level of capital above mere solvency.
Lawmakers intend bank capital requirements to permit institutions to weather unexpected losses
or unfavorable market developments. The net capital rule, on the other hand, is a liquidation
rule—it seeks to ensure that failing brokerages are shut down while they have money left to meet
customer claims. Even in such cases, the brokerage industry’s self-funded protection

¹⁰^Conf^e^r^eⁿ^c^e^of^Sta^t^e^Ba^nk^Supe^rv^{isors, “}^S^ta^te^Ba^nk^ing^De^pa^rtm^e^{nt L}ⁱ^nk^s,”^a^t^http:/^/www^.c^sbs.org^/link^s^/
^st^at^e_^lⁱⁿ^ks.^a^sp^.
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^W^illia^m^{D. Ja}^c^k^son.
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^Sta^t^{. 1}¹³⁸^,^P.L^.¹^06-¹⁰^2.

arrangement—the Securities Investor Protection Corporation—may have to cover many account ¹³
shortfalls.
As in banking, state securities supervisors retain certain oversight power over securities ¹⁴
businesses. Unlike the banking agencies, which supervise without intermediary organizations,
the SEC has delegated significant authority to private-sector bodies. For corporation accounting,
it has granted the Financial Accounting Standards Board and Public Company Accounting
Oversight Board major decision-making capabilities. For securities firms, it has allowed many
oversight responsibilities to be carried on by the National Association of Securities Dealers
(NASD), a “self regulatory organization” (SRO). The stock exchanges are also SROs and thus
exercise certain regulatory authority over their membership and over the corporations whose
shares they list. The SEC, however, may veto rulings of these nongovernmental bodies, may
require them to modify their rules (or adopt new ones), and exercise further oversight over them.

Although Congress has scattered provisions delegating various enforcement authorities to federal
banking agencies under specified circumstances throughout U.S. laws, a full range of the civil
enforcement powers of the federal banking agencies is set out in section eight of the Federal ¹⁵
Deposit Insurance Act. Banking violations are also punishable under federal criminal laws, and
banking regulators often refer suspected violations to the Department of Justice for possible
prosecution. Many prosecutions involving banks or banking officials are based on charges under
general criminal statutes, such as the federal laws against mail fraud, wire fraud, racketeering,
false statements, and money laundering. In addition, many federal criminal laws apply more
narrowly to banking. These include:
^{18 U.S.C. § 215}^bank^briber^y
^{18 U.S.C. § 656}^{theft or em}^{bezzlement of ba}^{nk f}^u^nds
^{18 U.S.C. § 709}^{false advertising or misuse of f}^{ederal terms s}^{uch a}^s^{“federal depos}^{it insurance”}
^{18 U.S.C. § 1005}^{false entries b}^y^ba^{nk em}^{ployees or false stateme}^{nts to reg}^ulators
^{18 U.S.C. § 1014}^{false statements o}ⁿ^{a loan or cre}^{dit application}
^{18 U.S.C. § 1029}^{access device fra}^ud
^{18 U.S.C. § 1344}^{bank f}^raud
^{18 U.S.C. § 2113}^bank^robber^y.
Because both banking and securities companies operate as intermediaries in financial
transactions, law requires them to make anti-money laundering and anti-terrorist financing
procedures to monitor and report on certain types of currency and foreign transactions under
various federal laws and under regulations issued by the Department of the Treasury’s Financial

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¹⁴^North^Am^e^r^ic^aⁿ^Se^c^u^ritie^{s A}^d^mⁱ^nistra^{tors A}^sso^cⁱ^a^{tion, “}^A^bou^{t Na}^sa^a^,^”^a^t^http://w^ww^.na^s^a^a^.^org^/
^A^bout%⁵^FN^A^S^A^A^/.
¹⁵^{12 U}^.^S.C^.^§¹⁸¹⁸^.

Crimes Enforcement Network.¹⁶ They also must report suspicious transactions.¹⁷ Violation of ¹⁸
these requirements is subject to potential criminal and civil penalties. In addition, Congress
requires them to institute procedures to comply with the various economic sanction programs
administered by Treasury’s Office of Foreign Assets Control (OFAC) and subjects them to
potential civil and criminal penalties for failure to comply with the requirements that include ¹⁹
blocking assets of designated entities and persons and notifying OFAC of that. Of course, banks
and banking officials may be prosecuted under criminal laws of general applicability, such as
those covering bribery of public or foreign officials and tax fraud and evasion.
The securities laws give the SEC a range of administrative sanctions that it can apply to violators.
Like the banking regulators, the SEC cannot bring criminal charges itself but makes
recommendations for prosecutions to the Justice Department. The principal securities statutes are
four, as follows.
The Securities Act of 1933,²⁰ called a “truth-in-securities” law, requires that securities be
registered with the SEC before a sponsor/issuer sells them to the public. Registration requires
disclosure of detailed information about the issuing corporation’s business, management, and
financial condition. Failure to make complete and accurate disclosures creates liability for civil
and criminal penalties.
The Securities Exchange Act of 1934²¹ created the SEC and gave it broad authority to adopt rules
and regulations to maintain fair and orderly securities markets. This act requires ongoing
disclosure and gives the SEC control over the form and content of corporate financial statements
(quarterly and annual reports, etc.). The act also applies to exchanges where securities are bought
and sold—stock, bond, and stock option markets must submit their rules for SEC approval.
Brokers, the firms that employ them, and other industry professionals must register; revocation of
registration may prevent them from working in the securities industry. The Exchange Act also
governs communications between firms and their shareholders as well as certain merger
transactions.
The Investment Company Act²² provides for regulation of defined investment companies such as
mutual funds. As securities, mutual funds must be registered before public sale, a process that
requires public disclosures regarding the fund and its managers. The law also places certain limits
on the type of investments that funds are permitted to make and on various other business
practices.

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¹⁸^Se^e^,^e^.^g^{., 3}¹^U^.^S^.^{C. §}^§⁵³^21,⁵³²²^.
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²⁰¹⁵^U^.^S^.^C^.^§§⁷⁷^a^et^seq^.
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²²¹⁵^U^.^S^.^C^.^§§⁸⁰^a^et^seq^.

The Investment Advisers Act of 1940²³ applies to persons engaging in the business of advising
others, either directly or through publications, as to the advisability of the purchase or sale of
securities. Advisers whose assets under management exceed specified thresholds must register ²⁴
with the SEC. In 2004, the SEC required hedge funds to register as advisers.

Congress has vested enforcement of federal banking laws generally in an institution’s primary
federal regulator. Each of the federal banking agencies issues regulations applicable to the entities
under its authority. Typically, these are coordinated through the Federal Financial Institutions ²⁵
Examination Council (FFIEC). It is an interagency body composed of the heads of the federal
banking agencies, which is charged with making “uniform principles and standards and report ²⁶
forms for examination of financial institutions,” encouraging “application of uniform ²⁷
examination principles and standards by State and Federal supervisory agencies,” and reviewing
all federal banking regulations at least once every 10 years “to identify outdated or otherwise ²⁸
unnecessary regulatory requirements.”
Federal banking regulators have both considerable enforcement options and wide discretion in
choosing among them. Besides the formal enforcement tools specifically authorized by statute,
each of the federal banking agencies employs informal methods of insuring that regulated
institutions meet safety and soundness standards as well as regulatory and statutory standards.
These range from moral suasion to written requirements that corrective action be taken. Much of
the information upon which informal enforcement actions are based derives from periodic bank
examinations. Each banking agency has its own examination force that detects violations during
recurring safety and special-purpose examinations of bank books and operations. Upon
completion of a bank examination, the regulator will present a Report of Examination to the
institution’s board of directors, which is to order remedial action or present information refuting
the findings. Other forms of informal enforcement tools to correct perceived weaknesses in an
institution include supervisory directives, board-of-director resolutions drafted by the regulator, ²⁹
and written instructions or agreements from the regulator.
Institutions usually make correction and remediation voluntarily following the examination
process and consider such self-correction a normal part of their business because of the
multiplicity and complexity of banking laws and regulations. If this informal process of
enforcement is unavailing, the banking agencies resort to the formal mechanisms available to
them. They, thus, typically issue progressively stricter enforcement decrees against more serious
weaknesses: memoranda of understanding, civil money penalties, cease-and-desist orders, and

²³¹⁵^U^.^S^.^C^.^§§⁸⁰^b^et^seq^.
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²⁶^{12 U}^.^S.C^.^§³³⁰⁵^.
²⁷^{12 U}^.^S.C^.^§³³⁰⁶^.
²⁸^{12 U}^.^S.C^.^§³³¹⁰^.
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orders requiring the removal of officials. Should errant practices continue, an institution may be
closed either by charter revocation or termination of its deposit insurance.
Enforcement units within each agency are as follows.
(1) OCC, the primary regulator of nationally chartered banks, which is organizationally placed
within the U.S. Department of the Treasury, assigns bank supervision and enforcement operations
to the Office of the Chief National Bank Examiner, within which there are “Large Bank
Supervision” and “Mid-size/Community Bank Supervision” units and four district offices.
(2) Fed, the primary regulator of state-chartered member banks and bank holding companies
including financial holding companies, conducts supervisory and enforcement activities through
its Division of Banking Supervision and Regulation and delegates to 12 regional Federal Reserve
Banks certain supervisory and enforcement powers.
(3) FDIC, the primary federal regulator of state-chartered banks not belonging to the Fed,
allocates enforcement to its Division of Supervision and Consumer Protection, which has Risk
Management, Policy and Examination Oversight, and Compliance and Consumer Protection units
within eight regional offices.
(4) OTS, the primary federal regulator of savings or thrift institutions, and their savings and loan
holding companies, organizationally within the U.S. Department of the Treasury, allocates its
supervisory and enforcement activity to its Office of Examinations, Supervision, and Consumer
Protection, with certain line supervisory responsibilities delegated to four regional offices.
(5) State-chartered banks are subject to regulation by state banking agencies. Each state has a
banking agency and usually designates an administrative position, Chief Examiner, Deputy ³⁰
Commissioner, or Supervisory Examiner, to enforce banking laws applicable to state banks.
They usually make examinations on alternating cycles under general cooperative agreements with ³¹
federal banking agencies, often negotiating them through the FFIEC.
Two units within the SEC have enforcement responsibilities: the Division of Enforcement and the
Office of Compliance, Inspections, and Examinations. They may operate via 11 regional SEC
offices.
The Division of Enforcement conducts investigations into possible violations of federal securities ³²
laws and oversees civil suits and administrative proceedings. The division conducts two levels
of investigations:
• Informal investigations, which rely primarily on the voluntary cooperation of ³³
witnesses and/or the target of the investigation, and

³⁰^{12 U}^.^S.C^.^§⁴⁸⁴^pr^o^h^ibi^t^s^s^t^a^t^e^s^f^r^o^m^e^x^am^ining^na^tio^na^{l ba}^nk^s^e^x^c^e^p^{t f}^o^r^c^o^m^p^lia^nc^e^w^{ith s}^t^a^t^e^law^s^{on unc}^la^im^e^d
^p^r^op^ert^y^an^d^esch^eat^.
³¹^Unde^r^{12 U.}^S.C.^§¹⁸²⁰⁽^d)(6)(A^{)(iii), f}^e^de^ra^{l ba}^nk^ing^a^g^eⁿ^cⁱ^e^s^a^r^e^{to c}^o^ordi^na^te^e^x^a^m^ina^{tions w}^ith^sta^t^e^ba^nk
^s^upe^r^v^is^or^s^.
³²^Se^e^htt^p^://w^ww^.s^e^c^.^g^o^v^/^divⁱ^sion^s/eⁿ^f^o^rc^e^.^shtm^l.

• Formal investigations, in which it uses subpoenas to compel testimony or the
production of documents. To obtain subpoena authority, the division submits a
memorandum to the commissioners (via the General Counsel). The memorandum
is a justification for the proposed investigation and the need for subpoenas. A
majority of commissioners, or the single commissioner then serving as the duty
officer, may then authorize a formal order authorizing administrative action or ³⁴
filing in federal court.
Normally, the agency conducts investigations on a nonpublic basis; the SEC generally refuses to
comment on whether an investigation is in progress. It announces enforcement actions to the
public, but not all investigations result in enforcement actions. Before bringing an action, division
staff may send out a “Wells Call,” suggesting intent to bring an action, giving the target the ³⁵
opportunity to respond in writing before bringing formal charges. Disclosure requirements of
the securities laws ensure that the recipient will likely have to publicize a Wells Call, since news
that an action is forthcoming is normally considered material to investors.
The Office of Compliance, Inspections, and Examinations (OCIE) is responsible for examinations
and inspections of registered entities—broker-dealers, investment companies, investment
advisers, transfer agents, clearing agencies, and self-regulatory organizations. This office
conducts inspections to attempt to assure compliance with the securities laws, to detect violations,
and to apprise the SEC of developments in the regulated community. When OCIE detects
deficiencies, it issues a “deficiency letter” which identifies problems that should be corrected, and
the office will monitor the situation until it believes that compliance has occurred. If the office
believes that violations are too serious for its process of correction, it will refer the violations to ³⁶
the Division of Enforcement.
As in banking, each state continues to have its own set of securities laws, called blue sky laws;
state agencies are responsible for enforcing these laws. SROs also have enforcement roles. For
example, the National Association of Securities Dealers (NASD) oversees the registration of
broker/dealers and their personnel and may bring a variety of sanctions against those who violate
its rules and standards. The stock exchanges, as SROs, are required to conduct market
surveillance and maintain and enforce rules to protect their public customers. SROs must submit ³⁷
proposed new rules to the SEC for approval.

Beyond the informal enforcement methods mentioned above, banking regulators have a wide
array of statutorily authorized formal enforcement tools that range from civil administrative fines
and orders to civil suits for damages and referrals to the Department of Justice for criminal
prosecution. Among the laws delegating civil enforcement authorities is Section 8 of the Federal
Deposit Insurance Act, which delegates to the federal banking regulators authority to issue cease

^(...c^on^tin^ue^d)
³³^A^.^A^.^So^{mmer, Jr. (ed}^.⁾⁶^SECUR^I^T^I^ES^LAW^T^E^C^H^N^I^QU^{ES § 8}⁷^.^{03 (}²⁰⁰⁵⁾^.
³⁴^I^d^{. a}^t^§^87.⁰⁴^.
³⁵^Som^m^e^r^{, a}^t^{§ 88}^.1^0.
³⁶^Se^e^htt^p^://w^w^w^.s^e^c^.^g^o^v^/^a^bout/^o^f^fⁱ^c^e^s^/^oc^ie^.htm^.
³⁷^Se^e^,^e^.^g^{., 1}⁵^U^.^S^.^{C. §}⁷⁸^s^.

and desist orders, prohibition and removal orders, civil money penalties, and orders canceling an ³⁸
institution’s insured status.
Likewise, the SEC has a wide range of enforcement tools. For example, it may use its discretion
in investigating possible violations of the securities laws and in obtaining injunctions against ³⁹
practices that may constitute violations. It has the authority to impose civil penalties for insider ⁴⁰
trading violations and to impose civil penalties in administrative proceedings for violations of ⁴¹
the laws. The SEC may also, after notice and opportunity for hearing, begin cease-and-desist ⁴²
proceedings.
A brief sketch of the formal enforcement tools available to federal banking regulators and to the ⁴³
SEC is set out in the following table.
Enforcement Tools of Federal Bank Regulators and the SEC
^{Tools Bank}^Regulators^SEC
^{Cease and}^{May be im}^{posed on insu}^{red depo}^{sitory institution}^{May be im}^{posed on any}^per^son^{who violates}
^{desist order}^{(IDI) or institution-affiliated parti}^{es (IAP) for (1)}^{federal securities laws. Responde}^{nt may}^be
^(C&D)^unsafe^{or u}^nsound^{practice, or (2}^{) violat}^{ion of any}^{ordered to disgorge il}^l-g^{otten fun}^ds.
^{law, rule, regulation, or any written agreeme}^nt.
^{C&D order may include affirmati}^{ve order to}
^{correct conditions resulting f}^{rom practices or}
^violat^{ions, or lim}^{itations on the activities of an IDI}
^{or IAP.}
^{Removal and}^{May be ta}^{ken against}^any^{IAP wh}^{o violates law}^,^{For registered entities (such}^{as b}^rokers,
^prohibition^{regulation, final C&D order, or written}^{dealers, and investment advisers,}^{the SEC}
^{agreement; e}^{ngages in}^unsa^{fe or}^unsou^{nd pra}^ctices^{may institute administrative p}^roc^{eedings to}
^{or breac}^{h of fiduciary dut}^{y, wher}^{e actual or}^suspe^{nd or revoke}^{registration, or to impose}
^{probable fina}^{ncial loss occurs, or}^where^{bars or s}^usp^{ension f}^{rom employ}^{ment in t}^he
^{dishonesty or mental c}^{ulpability is involved; or if}^{securities industr}^y.
^necessar^{y to protect a}ⁿ^{institution or depositors.}^{Section 305 of t}^{he Sar}^banes-O^{xley Act gives}
^Additi^{onal grounds for removal or prohibition}^{the SEC th}^{e aut}^{hority to bar a}^pe^{rson from}
^{apply to officers a}^{nd directors in}^violat^{ion of}^{serving as a}ⁿ^{officer or director}^{of a pu}^blicly-
^{specific ba}^{nking statut}^{es, and to a}ⁿ^{IAP involved in}^{traded company if t}^{hat p}^{erson co}^{mmitted a}
^{criminal proceedings.}^{securities law violati}^{on and has d}^emonstrated
^unfitne^{ss to serve.}
^{Civil money}^{Three tiers of mone}^{y pe}^{nalties exist: (1) for}^{The SEC often se}^{eks civil money}^penalties
^penalties^violat^{ion of law, regulation, final e}^nforceme^nt^{and disgorgement of illegal profit}^{s in civil}
^{order, written condition or agreement, temporar}^y^{suits. In cer}^{tain cases, fines}^impos^{ed on single}
^{C&D order, removal or suspe}^{nsion order, or}^{firms and individuals have r}^{un i}ⁿ^t^o^the
^violat^{ion of transaction re}^porting^req^uirements;

³⁸^{12 U}^.^S.C^.^§¹⁸¹⁸^.
³⁹^Se^e^,^e^.^g^{., 1}⁵^U^.^S^.^{C. §}⁷^8u.
⁴⁰^Se^e^,^e^.^g^{., 1}⁵^U^.^S^.^{C. §}⁷^8u-^1.
⁴¹^Se^e^,^e^.^g^{., 1}⁵^U^.^S^.^{C. §}⁷^8u-^2.
⁴²^Se^e^,^e^.^g^{., 1}⁵^U^.^S^.^{C. §}⁷^8u-^3.
⁴³^T^h^{e t}^a^b^u^l^{ar d}^e^scri^p^tⁱ^oⁿ^o^f^t^h^{e f}^o^r^m^al^en^f^o^rce^m^en^t^t^o^ol^{s ava}^ila^ble^{to ba}^nk^re^g^u^la^torsⁱⁿ^the^fⁱ^{rst c}^o^lu^mⁿ^of^the^ta^ble
^c^l^ose^l^y^f^o^llow^s^inf^o^r^m^a^{tion f}^ound^{in a}^ta^b^l^e^c^o^m^p^ile^{d by}^the^G^o^v^e^rⁿ^m^e^{nt Ac}^c^ounta^b^ili^ty^O^f^fⁱ^c^e⁽^{GAO) le}^tte^{r to}
^C^h^aⁱ^r^m^aⁿ^B^a^ke^r^of^the^Subc^om^m^itte^e^{on C}^a^pita^{l Ma}^r^k^e^t^s^of^the^H^ous^e^Fi^na^nc^ia^{l Se}^r^v^ic^e^s^C^o^m^m^itt^e^e^.^“^C^om^pa^rⁱ^s^{on of}
^Fina^nc^ia^{l I}ⁿ^s^titu^tio^{n Re}^g^u^la^tors^’^Enf^o^rc^em^eⁿ^{t a}^nd^P^r^om^{pt Corre}^c^tiv^e^A^c^{tion A}^u^thorit^ie^s^,^”^G^A^O^-^01-322R^{, J}^a^n.^3,
²⁰⁰^{1, pp}^.¹³^-²^1.

^{Tools Bank}^Regulators^SEC
^{(2) violati}^{on of law, etc., unsafe or un}^sound^hund^{reds of millions of do}^llars.
^{practice, or brea}^{ch of fiduciary}^{duty that}^{is part of}
^{a patter}^{n of misconduct, ca}^uses^{more than a}
^{minimal loss,}^{or results in p}^ecu^{niary gain to the}
^{violator; (3) knowing vio}^lati^{on of law, etc.,}
^{engaging in u}^nsafe^{or u}^nsound^pr^{actice, breach of}
^{fiduciary duty}^and^{knowingly or r}^{ecklessly causing}
^substa^{ntial loss or substa}^{ntial pec}^{uniary gain. Fines}
^{range f}^{rom $5,0}⁰⁰^per^{day (tier 1}⁾^{to $1,00}^0,00⁰
^{per day (tier 3).}
^{Injunctions a}^nd^{Bank regulators}^{have au}^{thority to seek court}^{The SEC often files civil suits see}^king
^consent^{injunctions, but i}ⁿ^the^{vast majority of cases,}^{injunctions to prohi}^{bit fut}^{ure violations. Many}
^agreements^purs^{ue administrative re}^medies.^{cases are settled out of co}^{urt, with conse}^nt
^{agreements, w}^here^{by the}^target^{of the}
^{investigation does not admit to w}^rongdoing
^{but agr}^{ees not to commit violatio}^{ns in t}^he
^futu^{re. Consent ag}^reement^{s are}^{used in ma}^ny
^{major cases, and may involve the}^payment^of
^{fines and/or p}^{rohibition and su}^sp^ension
^orders.
^{Termination of}^{FDIC may terminate de}^{posit insu}^rance^{based on}^{No insura}^{nce, th}^{us no com}^parabl^{e authority.}
^insuran^ce^{(1) unsa}^{fe or u}^nsou^{nd practices}^b^y^{an IDI, its}
^{directors, or trustees, (2) u}^nsafe^{or unsou}^nd
^{conditions to continue operation}^{s, or (3) violati}^on
^{by IDI, directors, or trust}^{ees of a}^{ny ap}^{plicable law,}
^{regulation, etc., or written agree}^{ment be}^tween
^{the IDI a}^{nd the FDIC.}
^Prompt^{As a bank}^becomes^u^{ndercapitalized, significantly}^{No directly comparable aut}^hority^{. Registered}
^corrective^underca^pitalized,^{or critically undercapitalized,}^{broker/dealers m}^{ust comply with}^{a net}
^{action and}^{regulators can ta}^{ke p}^{rogressively more intrusive}^{capital rule, and cease ope}^{rations if their}
^liquidation^{steps to monitor ba}^{nks, rest}^{rict c}^ertain^{capital falls below the specified level.}
^authority^{transactions, re}^{quire significant}^c^{hanges in}
^busines^{s operations, or re}^place^management.
^{Ultimately, regulators may appoint a receiver}^or
^{conservator and}^{close the institu}^tion.
^Source:^{Compiled by CRS.}

Insurance Information Institute and The Financial Services Roundtable. The Financial Services
Fact Book 2005.
http://www.financi al servicesfact s.org/ financial/
Spong, Kenneth. Banking Regulation: Its Purposes, Implementation, and Effects.
http://www.kc.frb.org/BS&S/publicat/PDF/RegsBook2 000.pdf.
U.S. Securities and Exchange Commission. “The Investor’s Advocate: How the SEC Protects
Investors and Maintains Market Integrity.”
http://www.sec.gov/ about/whatwedo.shtml.

^M^a^r^k^Jⁱ^c^k^lⁱ^ng ^{M. Mau}^r^een^M^u^rphy
^Sp^{ecialist i}ⁿ^Fiⁿ^aⁿ^c^{ial Eco}ⁿ^o^m^ics^L^e^gⁱ^s^l^at^iv^{e A}^t^torn^e^y
^m^jⁱ^c^k^lⁱⁿ^g@^crs^.^l^o^c.^g^o^v^,^7-⁷⁷⁸⁴^mm^u^r^phy^@crs^.l^oc.g^ov^{, 7}^-⁶⁹⁷¹
^Gar^y^Sh^o^r^ter ^Mich^{ael V. Seitz}^ing^e^r
^Sp^{ecialist i}ⁿ^Fiⁿ^aⁿ^c^{ial Eco}ⁿ^o^m^ics^L^e^gⁱ^s^l^at^iv^{e A}^t^torn^e^y
^g^s^h^o^rt^er@^c^rs^.l^oc.g^o^v^{, 7-}⁷⁷⁷²^m^s^ei^t^zⁱⁿ^g^e^r^@^crs^.^l^o^c.g^o^v^,^7-⁷⁸⁹⁵