Contractual obligations and regulations both fall under the umbrella of compliance. However, contract and regulatory compliance differ in how obligations arise. Contract compliance stems from the firm’s agreements with its investors and other parties. Regulatory compliance stems from agency-promulgated rules. In the U.S., the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) oversee registered investment advisers and firms, broker-dealers, and national securities exchanges.
Contract and regulatory compliance also differ in the effects of noncompliance. Breaching a contract with an investor or another party could lead to civil litigation, an injunction, or damages. A regulatory violation could lead to administrative proceedings, civil lawsuits involving the SEC, enforcement actions, and fines.