Certified Financial Management Specialist Practice Exam

What does the SEC primarily regulate?

1. Bank performance auditing

2. Insurance companies

3. Capital markets and securities

4. Corporate tax compliance

The correct answer is: Capital markets and securities

The primary focus of the SEC, or the Securities and Exchange Commission, is the regulation of capital markets and securities. This encompasses overseeing the securities industry, which includes stocks, bonds, and other investment vehicles. The SEC's mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. They achieve this through enforcing securities laws, ensuring transparency in financial reporting, and requiring companies to disclose material information that could influence investors' decisions. The SEC's involvement in capital markets is crucial because it helps establish investors' confidence, which is vital for the functioning of financial markets. By regulating securities transactions and maintaining market integrity, the SEC plays a pivotal role in the overall financial system and economic stability. Other areas mentioned, such as bank performance auditing, insurance companies, and corporate tax compliance, fall under different regulatory bodies or frameworks. For example, banks are primarily regulated by federal banking regulators, while insurance companies are generally overseen by state insurance departments. Corporate tax compliance is managed by the Internal Revenue Service (IRS). Thus, the correct answer highlights the SEC's specific mandate concerning securities and capital markets.