Much like the insurance industry, financial services and securities providers are subject to steep, ever-changing regulations and oversight. While pre-Great Depression investment dealers may have been able to get away with trickery like overstating an investment’s true value, the Uniform Securities Act has helped shape state securities regulations, leading to more uniform and less shady business practices.
The Uniform Securities Act (USA) is a model law created by the National Conference of Commissioners on Uniform State Laws (NCCUSL). It serves as a starting point for drafting and enforcing state-level securities regulations. Now, you may be wondering why we need the USA when the Securities Exchange Commission (SEC) exists. Isn’t the SEC already tasked with overseeing the entire U.S. securities market?
Yes, but also no. The SEC actually doesn’t have authority over all securities transactions because not all investments are covered federally. Thus, state-level securities regulation, like the Uniform Securities Act, is needed to protect consumers whose investments aren’t covered at the federal level.
Blue sky laws are state laws created to regulate the sale of securities. While blue sky laws vary from state to state, their general purpose is to protect investors from securities fraud. You may have heard the Uniform Securities Act called a blue sky law, but more accurately, the USA serves as a model that states use to create their own blue sky statutes.
To understand the term, you first need to understand the state of the U.S. securities market in the early 1900s. Back before the SEC existed, our nation’s investment and financial industry was more akin to the Wild West than the highly regulated environment we now know it to be.
Investment dealers issued stock and promoted investment deals with lofty, unsupported promises of future gains. They sold securities without evidence to corroborate these claims, and in some cases, they concealed important details to make investments appear more attractive than they actually were.
While shady securities transactions had previously been described as “blue sky,” Mckenna definitely popularized the sentiment, though he died before truly seeing his desire for greater consumer protection come to fruition.
The U.S. securities market remained relatively unchecked up until the stock market crash of 1929. In fact, the hyper-speculative environment that shaped the financial industry throughout the 1920s played a large role in inflating the stock market before its eventual collapse at the end of the decade.
Throughout the early 1930s, the stock market continued to climb, falter, and collapse with little forward progress. All the while, Congress enacted several Securities Acts to help regulate the industry, including the Securities Act of 1933, which implemented securities broker registration and the Securities and Exchange Act of 1934, which created the SEC and gave it the authority to regulate the stock market on a federal level. Which brings us back to the Uniform Securities Act’s role in regulating securities at the state level.
The fact that securities regulations vary by state isn’t so shocking to anyone familiar with the insurance industry. Like the NAIC’s model laws encourage uniformity among states concerning insurance regulation, the USA encourages uniformity among states concerning securities regulation.
You can think of the USA as a framework that guides states in drafting their own blue sky laws and securities legislation. The USA provides structure and consistency in securities regulation across the states as well as in coordination with federal oversight from the SEC by outlining the authority of both state and federal regulators in handling fraudulent securities practices.
In 2002, the NCCUSL released a new Uniform Securities Act which takes into account the previous versions, the Uniform Securities Act of 1956 and the Revised Uniform Secuirites Act (RUSA) of 1985, as well as new federal legislation, changes in the technology of securities trading and regulation, and more modern interstate and international aspects of the U.S. securities market.
The Uniform Securities Act (2002) is split into seven main articles:
Today, all 50 states along with the District of Columbia and some U.S. territories have some sort of blue sky law in place. Most of these laws are based on either the Uniform Securities Act of 1965, the RUSA, or the Uniform Securities Act of 2002 with some states incorporating aspects of all three models into their statutes.
The USA, blue sky regulations, and the SEC represent only a few of key players that make up the complex web of regulation in the U.S. securities and insurance markets. For insurance businesses working with variable lines brokers, remaining in compliance requires successfully navigating this web, a task that without support can feel a lot like guess-work. AgentSync Manage with Enhanced Variable Lines Support unifies securities and insurance data into a single view, so your team isn’t in the dark about where and how your brokers are licened and registered to sell insurance and variable lines products and services. See how AgentSync helps connect agencies, carriers, securities firms, and MGA/MGUs to the right data at the right time. Contact us today.
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