Securities commission

History

As long as there have been securities there have been regulations. However, in the early days this consisted primarily of self-regulated groups or societies. External government regulation has primarily been driven by financial crises or scandals.

As early as the 13th century the king Edward I of England decreed that brokers should be licensed after he was forced to go to local money brokers that give much less favorable terms then his Italian brokers after the start of the Anglo-French war.

In 1720 the British Parliament passed the Bubble Act which had specific regulations for securities. However the motive of this act was more to support the ‘South Sea bubble’ than protect consumers. However this was the first time that prospectuses and disclosure in the modern sense were used. There was widespread distrust of brokers as the scams collapsed.

In the United States, although Massachusetts required the registration of railroad securities as early as 1852, and other states passed laws relating to securities in the late 19th and early 20th centuries, the real push for securities regulation came from the Midwestern and far western states. After common feeling that investors in these areas of the country were being victimized by capitalists in the east.

However it was the failure of the Blue sky law and the 1930 financial crisis and Great Depression that led the United States government to pass legislation in 1934 to strengthen securities law and for the first time create a separate agency the Securities and Exchange Commission.

In the early 1980s as many countries deregulated their financial markets, they created specific government agencies to police the securities markets and stock exchanges so as to separate regulation from operation of financial markets. Some countries like the UK, created one large agency that covered all financial products. However, some countries use a different model where there are separate agencies for different financial products. Typically, securities, banking and insurance are split, but there may also be separate agencies for futures, options and commodities.

The advent of derivatives and new financial products can obfuscate who has jurisdiction and what their responsibilities are. Some financial companies have used to their advantage to skirt existing regulation.

The 2008 financial crisis led to criticism of the securities regulators for failing to stop abuses of markets and their slowness in responding to the crisis and having suffered regulatory capture.