Securities and Exchange Commission

The Securities and Exchange Commission (SEC) is the US federal agency that regulates securities markets, which was created by the Securities Exchange Act of 1934. It is responsible for overseeing exchanges, broker-dealers, investment advisers, transfer agents, and credit rating agencies. It is also responsible for enforcing the federal securities laws against firms that break them.

What is the SEC’s three-part mission?

The SEC operates under a three-part mission, which is: protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. In practice, this means writing the rules, examining the firms that register under them, and bringing the relevant civil actions when those firms fail.

The core mandate includes the following:

• Interpretation and enforcement of federal securities laws
• Issue and amend SEC regulations governing markets and registrants
• Examination of  broker-dealers, investment advisers, and credit rating agencies
• Overseeing self-regulatory organisations, including FINRA and the exchanges
• Coordinate US securities regulation with state and foreign authorities

Where do identity controls come in?

The SEC has not written its own customer due diligence rulebook. It enforces the FinCEN rules issued under the Bank Secrecy Act by making compliance with them obligatory. This indirect route is what results in firms making mistakes. Violations of the BSA and FinCEN regulations are handled in different ways. These include administrative, civil, or criminal enforcement mechanisms, which often depend on the severity and the intent of the crime.

SEC rules for broker-dealers that typically govern onboarding

SEC KYC requirements at account opening

Under 31 CFR 1023.220, you are required to collect a customer’s name, date of birth, address, and identification number before opening an account; then it is also mandatory to verify that identity through documentary or non-documentary means. The standard is a reasonable belief that you know who the customer is, not a fixed checklist.

Three things decide whether an examination goes well:

1. The Verification method has to match risk: A non-documentary check alone will not hold for a customer opening remotely with a foreign passport.
2. Records should reconcile: You must keep the information collected, the methods used, and the resolution of any discrepancy.
3. Legal Entities need a second layer: Beneficial ownership under 31 CFR 1010.230 is separate from CIP, and running one does not satisfy the other.

The failure mode is a Customer Identification Program (CIP) that exists on paper while the verification process waives steps for high-value accounts, or a beneficial ownership form collected at onboarding and never refreshed when the ownership structure changes.

SEC AML compliance and enforcement

The Commission examines registrants for Bank Secrecy Act compliance and charges failures under Section 17(a) of the Exchange Act together with Rule 17a-8. SEC enforcement actions here rarely turn on one missed customer. They turn on a pattern where alerts are generated and never reviewed, suspicious transactions are identified but never reported, or monitoring was tuned so narrowly it produced almost nothing. In 2022, the SEC charged Wells Fargo Advisors with AML-related violations tied to its suspicious activity reporting. The programme was documented. It was not operating.

Investment advisers sit differently. FinCEN’s AML programme and SAR rule for registered and exempt reporting advisers was postponed to 1 January 2028, so advisers carry no federal AML programme mandate until then. Advisers that clear through a broker-dealer still feel the rules second-hand, because the clearing firm has to satisfy its own CIP and monitoring obligations on the underlying accounts.