Key Differences Between Federal and State Regulators
- April 1, 2025
- Posted by: 'FINRA Exam Mastery'
- Category: Finance
⚖️ Key Differences Between Federal and State Regulators
When studying for licensing exams like Series 63, 65, or 66, it’s critical to understand the distinct roles and jurisdictional boundaries between federal regulators (like the SEC) and state regulators (acting under NASAA guidelines). These two layers of regulation often overlap but serve different primary functions in protecting investors and enforcing securities laws.
This breakdown highlights the essential differences you need to know for the exam.
🏛️ Federal Regulators – Overview
Primary Agency: Securities and Exchange Commission (SEC)
Main Focus: Regulate national securities markets and activities
📜 Key Responsibilities:
- Registration of public offerings (IPO filings under the Securities Act of 1933)
- Oversight of securities exchanges (NYSE, NASDAQ)
- Regulation of broker-dealers operating across multiple states
- Registration and supervision of large investment advisers (>$100M AUM)
- Enforcement against insider trading, accounting fraud, and market manipulation
⚡ Characteristics:
- Apply uniform national standards
- Focus on public companies, national trading, and large advisers
- Enforce disclosure and reporting requirements (10-Ks, 10-Qs, Form ADV)
🏛️ State Regulators – Overview
Primary Authority: State Securities Administrators (working under NASAA model laws)
Main Focus: Protect investors within their state’s borders
📜 Key Responsibilities:
- Registration of broker-dealer agents and investment adviser representatives (IARs)
- Regulation of small and mid-sized investment advisers (<$100M AUM)
- Oversight of intrastate securities offerings (within one state)
- Investigation and prosecution of fraud or unethical sales practices locally
- Authority to deny, suspend, or revoke registrations
⚡ Characteristics:
- Apply state-specific rules under the Uniform Securities Act (USA)
- Grant or deny exemptions based on state guidelines
- Issue cease and desist orders, subpoena witnesses, and impose fines at the state level
📊 Key Differences Table
| Area | Federal Regulators (SEC) | State Regulators (NASAA/Administrators) |
|---|---|---|
| 📍 Jurisdiction | Nationwide | Within state boundaries |
| 📋 Registration Focus | Public companies, broker-dealers, large advisers | Agents, IARs, intrastate securities |
| 🧾 Main Laws Applied | Securities Act of 1933, Securities Exchange Act of 1934 | Uniform Securities Act (USA) |
| 🛡️ Protection Goal | Market-wide transparency | Direct investor protection locally |
| ⚖️ Enforcement Tools | Civil penalties, disgorgement, SEC actions | Administrative orders, fines, license revocation |
| 📄 Key Forms | Form ADV, Form BD, 10-K, 10-Q | Form U4, U5 (through CRD/IARD systems) |
📌 Exam Focus Points
- Federal law regulates disclosure and national securities trading.
- State law regulates individual representatives and local investment activity.
- State Administrators can investigate firms operating within their state even if federally registered.
- Exemptions: States can impose their own rules on securities and registration exemptions under certain conditions.
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