Securities and Exchange Commission: Rulemaking and the Enforcement Process

The Commission’s rulemaking process is intended to ensure that aspects of regulatory changes are analyzed before a change takes effect. A need for rulemaking can be identified internally by the Commission or externally by Congress, another government agency, private industry, or the general public.

The rulemaking process usually begins with a rule proposal If the Commission approves the rule proposal, it is then presented to the public (through publication in the Federal Register and on the Commission’s website) for a specified period of time. The public’s input is considered as a final rule is crafted. Rules are adopted by a vote of the full Commission.

The Office of the Secretary (OS) reviews rules for compliance with Federal Register requirements, sends related documents to various agencies involved in the process, issues official rulemaking documents, coordinates Commission approval of rules, and maintains certain rule-related files. OS also receives and organizes public comments and then forwards them to the Office of Filings and Information Services (OFIS) and to the relevant division staff.

The Division of Enforcement was created in August 1972 to consolidate enforcement activities that previously had been handled by the various operating divisions at the Commission’s headquarters in Washington. The Commission’s enforcement staff conducts investigations into possible violations of the federal securities laws, and litigates the Commission’s civil enforcement proceedings in the federal courts and in administrative proceedings.

Enforcement:
The Commission’s mandate is to protect investors. The Commission is not authorized to act on behalf of individual investors. The Commission can bring a variety of administrative proceedings, which are heard by hearing officers and the Commission. One type of proceeding, for a cease-and-desist order, may be instituted against any person who violates the federal securities laws. With respect to regulated entities (e.g., brokers, dealers, and investment advisers) and their employees, the Commission may institute administrative proceedings to, among other things, revoke or suspend registration, or to impose bars or suspensions from employment. In both cease-and-desist proceedings and administrative proceedings against regulated persons, the Commission is authorized, among other things, to order the payment of civil penalties and disgorgement of ill-gotten gains.

Topics Covered:
This session is to provide an understanding of the SEC’s responsibilities related to rulemaking and enforcement of rules related to the financial markets. We will examine the rulemaking process and the enforcement process that all accountants and auditors must understand to ensure proper compliance with SEC laws.