Finserv Glossary

Regulatory Compliance

What is Regulatory Compliance?

Financial compliance is the regulation and enforcement of the laws and rules in finance and the capital markets. It ranges through the entire financial spectrum, from investment banking practices to retail banking practices. As noted by the Corporate Finance Institute (CFI), financial  compliance regulations cover a broad spectrum. 

U.S. Financial System Regulators 

There are a number of regulatory bodies which oversee the country’s financial system.

The Federal Reserve

The Federal Reserve System is the central bank of the United States. The Federal Reserve System performs five functions to promote the effective operation of the U.S. economy and, more generally, to serve the public interest. It includes three key entities: the Board of Governors, 12 Federal Reserve Banks, and the Federal Open Market Committee.

It performs five general functions to promote the effective operation of the U.S. economy and, more generally, the public interest. The Federal Reserve conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy; promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the U.S. and abroad; promotes the safety and soundness of individual financial institutions and monitors their impact on the financial system as a whole; fosters payment and settlement system safety and efficiency through services to the banking industry and the U.S. government that facilitate U.S.-dollar transactions and payments; and promotes consumer protection and community development through consumer-focused supervision and examination, research and analysis of emerging consumer issues and trends, community economic development activities, and the administration of consumer laws and regulations.

Securities and Exchange Commission (SEC)

The Securities and Exchange Commission (SEC) is a regulatory agency that is independent of the government and oversees the United States securities market, monitors security exchanges, and enforces securities law. When monitoring security exchanges, the SEC looks for signs of front running, trading on public information, fraud, and corporate malfeasance.

The SEC’s main goal is to establish transparency throughout the securities market. An important way in which the federal agency regulates the securities market is by requiring that public companies file quarterly and annual financial reports, which are available to the public. Also, the SEC monitors rating agencies such as Standards and Poor’s and Moody’s. The SEC regulates rating agencies to ensure that they maintain the integrity of their ratings; thus, not misleading investors.

Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance of at least $250,000 for accounts with banks and thrift institutions. By providing deposit insurance, the FDIC aims to preserve and promote the public’s confidence in the US financial system.

The FDIC only insures deposit accounts such as checking accounts, savings accounts, and certificate of deposits (CD’s). It does not insure stocks, bonds, and mutual funds. The FDIC helps with the financial compliance of the US financial system by examining over 4,000 banks for operational safety and soundness. Additionally, the agency ensures that banks are complying with consumer protection laws, including the Truth-In-Lending Act, the Gramm-Leach-Bliley Act, and the Community Reinvestment Act.

Federal Acts and Banking Regulations

The American Banking Association website https://www.aba.com/banking-topics/compliance/acts#sort=%40stitle%20ascending

provides a comprehensive listing of federal acts and banking regulations, with links to full analyses and related news, a number of which, most relevant to financial institutions, are provided below:

Bank Secrecy Act

The BSA covers reporting of large currency transactions, customer identification and risk assessment, customer due diligence, and reporting of possible suspicious activities as well as requirements to maintain and retain certain records that may prove useful for law enforcement.

Bank Service Company Act

The Bank Service Company Act governs permissible bank service company activities, prior regulatory approval for bank investments in service companies, and regulation and examination of bank service companies.

Community Reinvestment Act

The Community Reinvestment Act encourages depository institutions to help meet the convenience and credit needs of their communities, including low- and moderate-income neighborhoods.

Consumer Financial Protection Act

The Consumer Financial Protection Act created the CFPB which is charged with consumer protection and overseeing consumer financial products.

Credit Card Accountability Responsibility and Disclosure Act

Among other provisions, the CARD Act restricts interest rate increases on credit cards and addresses promotional rates, double-cycle billing, application of payments, and over-the-limit fees. It requires disclosures, including disclosure of the impact of making only minimum payments, and posting of credit card agreements on the internet. It imposes certain conditions when considering applications from people under 21.

Dodd-Frank Wall Street Reform and Consumer Protection Act

Designed to promote financial stability, Dodd-Frank has far-reaching regulatory effects for banks.

Economic Growth, Regulatory Relief and Consumer Protection Act

2155, the first bipartisan regulatory reform law to be enacted in nearly a decade, includes provisions with a range of effective dates, including several that were effective immediately.

Electronic Fund Transfer Act (Reg E)

Regulation E covers various subjects related to electronic fund transfers, including disclosures, opt-in to debit card overdraft services, access devices (including debit cards), recurring automated transactions, liability for unauthorized transactions, and billing error disputes. It affects deposit accounts, gift cards, payroll cards, and prepaid cards.

Equal Credit Opportunity Act (Reg B)

ECOA prohibits discrimination based on the prohibited bases listed in the law, including race, gender, national origin, whether a person relies on public assistance and whether an applicant has exercised their rights under the Consumer Credit Protection Act.

Fair and Accurate Credit Transactions Act

Designed to help consumers check their credit reports for accuracy and detect identity theft early, the FACT Act gives every consumer the right to request a free report from each of the three major credit bureaus.

Fair Credit Reporting Act (Reg V)

FCRA governs consumer reports, including credit reports and deposit account reports. Provisions impacting banks include those related to disputes about what banks report, prescreened offers of credit, affiliate sharing, risk-based pricing notices, adverse action and credit score notices, and identify theft.

Federal Reserve Act

The FRA requires the Fed to set reserve requirements for banks, which is done through Regulation D.

Gramm Leach Bliley Act (Reg P)

Banks covered by this Act must tell their customers about their privacy practices and explain to them their right to "opt out" if they don't want their information shared with third parties.

Home Mortgage Disclosure Act (Reg C)

HMDA data are important because they help show whether lenders are serving the housing needs of their communities; they give public officials information that helps them make decisions and policies; and they shed light on lending patterns that could be discriminatory.

Right to Financial Privacy Act

RFPA offers customers some protection from federal government scrutiny. It establishes specific procedures the federal government must follow to obtain customer financial records from a financial institution. Generally, the federal government must obtain a subpoena, notify the customer, and prove the customer with an opportunity to object. RFPA also imposes related limitations and duties on financial institutions before it can release customer financial information.

Truth in Lending Act (Reg Z)

Regulation Z impacts all consumer credit including mortgages, home equity, car, and personal loans as well as credit cards. In addition to disclosures, it imposes limitations on home equity plans, addresses certain charges applicable to credit cards, and regulates certain practices with regard to private education loans.

Truth in Savings Act (Reg DD)

Regulation DD requires certain terms to be included in initial disclosures, periodic statements, and advertisements. In addition, it requires that banks provide change in terms notices and that interest paid on interest-bearing deposit accounts be based on the full amount of the principal on deposits.

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