Companies that sell securities to the public must obey a wide range of federal and state laws and regulations. These limits govern many aspects of a company’s business, from the claims it’s allowed to make in its marketing materials to the fiduciary responsibilities its representatives have to clients.
Complying with the laws and following the rules makes sense, since penalties can be harsh, and bad publicity may be even harsher. So the companies employ internal compliance departments, where lawyers review documents and procedures and investigate reports of misconduct, to make sure the company adheres to the law.
For example, if you file a complaint about your broker with the firm, it goes to the compliance department, which reviews the case and conducts its own investigation. In cases of violations, representatives may be reprimanded — or fired.
