What is financial law?

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The term financial law refers to the legal framework surrounding the process of raising or providing funds or capital. Financial law may apply to areas of law dealing with everything from mortgage and credit card interest rates to mergers and acquisitions.

Financial regulations are enforced to prevent market manipulations like insider trading, to ensure the competence of professionals in the financial industry, to investigate complaints, and to protect consumers. Acts of financial law are designed to reduce violations and maintain confidence in the overall financial system. Financial law covers a multitude of areas. An agency and a set of rules exist for nearly every type of financial product or infrastructure.

Types of Financial Law

Securities law governs the transfer of shares, stocks and bonds. This branch of financial law regulates the exchange of money market instruments, commodities, derivatives, futures, and options. Securities law also regulates brokerage and broker-dealer behavior and disputes.

Corporate law deals with the formation and regulation of companies, including financing, public offerings and the makeup of corporate boards. Corporate law also covers company behavior including ethics and social responsibility.

Antitrust and competition law is another area, which is related to corporate law. The Department of Justice and Federal Trade Commission use this set of laws and regulations to monitor mergers and corporate takeovers. These two agencies make sure no one company or small group of companies is able to control prices or otherwise manipulate the market in a way that harms consumers or smaller businesses.

For example, the Department of Justice recently refused a merger petition submitted by two cell phone companies because the combination would account for more than half of the market. This would make it easy for the combined companies to raise rates to consumers’ disadvantage.

Enforcement - Securities and Exchange Commission

The two agencies charged with enforcing securities and corporate laws are the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). The Financial Industry Regulatory Authority (FINRA) ensures fairness in the brokerage market and protects consumers from unfair dealing.

The Federal Deposit Insurance Corporation (FDIC) and the National Credit Union Administration (NCUA) regulate Banking and Consumer Lending companies. These include banks, savings and loan firms and credit unions. These agencies also cover major banks and credit card issuers. The FDIC ensures the availability of consumer deposits and oversees the reliability of banking products. The NCUA is its credit union counterpart.

In the midst of the bank bailout and reports of abusive behavior by credit card companies, the Consumer Financial Protection Bureau was formed. Its mission is to encourage transparency in consumer financial disclosures, such as accurate reporting of credit card interest rates.

Because large banks are a large part of the mortgage industry, the Office of Thrift Supervision is responsible for the integrity of mortgage companies, some insurance companies, and some savings and loan firms. In light of the mortgage crisis and the failure and subsequent bailout of large firms like AIG and Bank of America, Congress has proposed reforms to the office. This office, along with the federal courts, now oversees the restructuring of mortgages and compliance with bailout rules.

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