U.S. Securities and Exchange Commission - Term Paper Example

? JP Morgan Chase JP Morgan Chase Discuss how administrative agencies like the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC) take action in order to be effective in preventing high-risk gambles in securities/banking, a foundation of the economy. Ans. Federal Securities Laws The mission of the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC) is to protect investors by maintaining fair, orderly, and efficient markets thereby facilitating capital formation (SEC, 2013). The SEC and CFTC draw the statutory authority from three statutes, namely, the Securities Exchange Act of 1934 (“Exchange Act”), the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”). The Dodd-Frank Act amended certain provisions of these statutes and expanded the scope of SEC and CFTC, including the creation of an oversight regime for the over-the-counter derivatives markets and hedge fund advisers, as well as enhanced supervision of credit rating agencies and clearinghouses. Foster and Enforce Compliance with the Federal Securities Laws The SEC and CFTC encourage conformity with Federal securities laws by all firms and organizations involved in the financial market which is critical for investor protection and investor confidence in the capital markets. They conduct extensive national examination and enforcement programs. These include hiring staff with new skill sets, streamlining processes, enhancing information sharing, leveraging the knowledge of third parties, continuing to improve the way the SEC and CFTC handles the thousands of tips the agency receives annually, and improving risk-assessment techniques (SEC, 2013). Establish an Effective Regulatory Environment The SEC and CFTC establish and maintain a regulatory environment that promotes high quality disclosure, financial reporting, and governance, and that prevents abusive practices by registrants, financial intermediaries, and other market participants. They look to detect violations of the securities laws and rules, and to foster strong compliance and risk management practices within these firms and organizations through disclosure reviews and examinations of broker-dealers, investment advisers, self-regulatory organizations (SROs) and other market participants. Facilitate Access to the Information for Investors As part of its disclosure program, the SEC requires entities to disclose financial and non-financial information to the public, providing a common pool of knowledge for all investors to use to judge for themselves if a security is a good investment. The Sarbanes-Oxley Act (Ribstein, 2003) requires the Commission to review disclosures made by companies reporting under the 1934 Act at least once every three years and more frequently where circumstances warrant. Enforcement Division The Enforcement Division undertakes investigations and plays a major role as deterrent through expanding and focusing the investigations, strengthening litigations, bolstering staff for the Office of Market Intelligence, expanding Enforcement’s information technology expertise and staffing and bolstering staffing for the delinquent debt collection and distributions functions. 2-Determine the elements of a valid contract, and discuss how consumers and banks each have a duty of good faith and fair dealing in the banking relationship. Ans. Elements of a Valid Contract A contract is an agreement made between two or more corporations or persons that the courts will enforce. The creation of a binding contract that the courts will enforce requires the contracting parties to meet a number of requirements that are prescribed by the law of contract. While these requirements are not numerous, they must, nevertheless, be met before the agreement creates rights and duties that may be enforceable at law (Willes, 2008). These requirements are referred to as the elements of a valid contract and consist of the following: (a) An intention to create a legal relationship (b) Offer (c) Acceptance (d) Consideration (e) Capacity to contract (f) Legality One of the fundamental elements of an agreement is a promise. The clear intent by a person to stand by his word under all circumstances is vital. Therefore, the first requirement for a valid contract must be the intention on the part of the person making a promise (the promisor) to be bound by the promise made. This intention to create a legal relationship is an essential element of a valid contract. Thus both the bank and consumer have a duty of good faith and fair dealing in banking relationships which are essentially contracts between the bank and the consumer. 3-Compare and contrast the differences between intentional and negligent tort actions Ans. Tort is a system in which an individual can use another for a perceived wrong (White, 2003). Intentional tort is wherein the action concerned is not necessarily of hostile intent, or a desire to do any harm, but that the intent to bring about a result which will invade the interests of another in a way that the law will not sanction. Determining whether liability exists for an intentional tort focuses on whether the actor intended his conduct. The plaintiff has only to prove the intent to act but need not prove that the actor intended the harm that actually results. Negligence is the failure to use such care as a reasonably prudent and careful person would use under similar circumstances (Cheeseman, 2004). Simply, it is conduct below that which society considers reasonable. When such unreasonable conduct is the proximate cause of injury to another person or his property, the actor may be liable in tort for negligence. A person who is negligent did not intend to cause harm, but is still held legally responsible because the careless actions injured someone. With an intentional tort, by contrast, there was intent to cause harm. The defendant knowingly and purposefully committed an act that resulted in an injury to the plaintiff. 4-Discuss the tort action of “Interference with Contractual Relations and Participating in a Breach of Fiduciary duty” and, if the bank you’ve chosen were to behave as JP Morgan did, would you be able to prevail in such a tort action. Ans. Interference with contractual relations and participating in a breach requires the elements including the existence of a contractual relationship, intent on the part of the defendant to harm the plaintiff by interfering with that contractual relationship, the absence of a privilege or justification for such interference, and damages resulting from the defendant's conduct. Fiduciary duties require that the fiduciary acts solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. A breach of fiduciary duty is often easier to prove than fraud. The claimant does not need to prove criminal or fraudulent intent or the other elements of fraud. To prevail, the claimant must show only that the defendant occupied a position of trust or fiduciary relationship as described above and that the defendant breached that duty to benefit personally. A breach of fiduciary duty claim is a civil action. The claimant may receive damages for lost profits and recover profits that the disloyal employee earned. Yes, if the bank I deal with engages in such an intentional breach of trust, the law permits in taking tort action. 5-With the advent of mobile banking, discuss how banks have protected the software that allows for online transaction to occur through automation. Ans. The explosive growth of mobile usage world over and range of applications and modes of access through mobiles have made mobile phone a personal banking device. The number of financial institutions around the globe that offer mobile banking services in an effort to better match patterns in their customer’s lives is on the rise. The diversity of handheld devices presents a clear challenge for banks looking to optimize delivery of services across channels and specific customer segments such as corporate customers. When planning their mobile strategy and rollout, financial institutions are often faced with having to choose from three different platforms or modes to access mobile banking, short message service (SMS) text banking, mobile Web, and rich-client application. Each technology solution comes with its advantages and challenges. Banks should take precautions as well, and strengthen access control to their online banking applications by means of authentication technology. Authentication Mechanisms Strong authentication mechanisms come in two important flavors: one-time passwords and electronic signatures. One-time passwords are used for the authentication of the end-user when the user logs onto the application. One-time passwords are generated based on a variable parameter, such as the time or a random number. They are valid for only a limited amount of time (typically in the range of minutes) and can only be used once. The strength of one-time passwords lies in the fact that they narrow down the window of opportunity for a fraudster to perform an attack. Hence, it becomes more difficult to perform fraudulent activities, especially when compared to the possibilities to perform fraudulent action when using static passwords. One-time passwords, however, do not provide protection against the injection of or alteration to financial transactions. In order to resolve these problem electronic signatures should be used. Electronic signatures, the second type of authentication mechanism, authenticate the financial transactions. E-signatures allow the bank to verify whether a transaction was initiated by the genuine end-user and was not altered in transit. It prevents the fraudster from submitting transactions or modifying existing transactions. As a result e-signatures offer the ideal security control against both local and remote man-in-the-middle attacks. Device Identity The major differentiator between the mobile channel and other self-service channels, such as the Internet, is the concept of “known device.” Device identification is a key part of the mobile security because it is the second factor of the two-factor security model. In the context of rich-client applications security, this also enables the application to be locally stored and process data. This allows for the support of security features in addition to those supplied natively by the phone like each instance of a downloaded application should have its own unique ID, allowing validation of server requests and detection of potential spoofing activities. Device Fingerprinting A device fingerprinting process further enhances the security capability by dynamically capturing mobile-specific elements such as mobile carrier, device type and mobile phone number. These elements are then used to determine which transactions may be allowed, providing a higher level of certainty for financial institutions and users alike, especially when dealing with high-dollar transactions. SSL Encryption The primary option for encryption of rich-client applications is SSL. SSL is supported by all smartphones and provides a proven, industry standard security protocol for the transport of data from the phone to the bank’s internal servers. Conclusion There exists a considerable and genuine threat to all financial services delivery channels, including mobile phones, from organized criminal activity and insider fraud. There is also a marked increase in identity fraud, fraud in financial transactions and theft of customer data. Security best practices recommend measures to protect the entire business lifecycle of the mobile phone as a new self-service banking device while maintaining the balance between security and convenience. It is essential to protect the whole mobile channel. The quintessence of security is in preserving the trust of customers through continued safe usage to create a Trusted Environment for use. References Cheeseman, Henry. R. (2004). E-Commerce and Digital Law International Law and Ethics. Prentice Hall Ribstein, Larry. E. (2003). International Implications of Sarbanes-Oxley: Raising The Rent On Us Law. Illinois Law and Economics Working Papers Series Working Paper No. LE03-005. Retrieved from http://papers.ssrn.com/pape.tar?abstract_id=401660 U.S. Securities and Exchange Commission (SEC). (2013). Financial Year 2013 Congressional Justification White, Edward. G. (2003). Tort Law in America: An Intellectual History. Paperback Willes, John. A. and Willes, John. H. (2008). Fundamentals of Canadian Business Law. McGraw- Hill Ryerson. Read More