violating a particular regulation is, in effect, the same as violating the law that created it. In general, regulations are designed to increase flexibility and efficiency in the operation of laws; hence, many of the working provisions of statutes are embodied in regulations. Also, regulations tend to be more numerous (e.g., the Securities Exchange Act of 1934, which governs the trading of public securities in secondary markets, ultimately led to the creation of hundreds of specific rules) than the statutes they purport to enforce. It is also worth mentioning that governmental units within states––typically counties and municipalities––may also enact laws, commonly known as ordinances , via specific powers granted to them by the state; ordinances may not violate state or federal laws. All of the above can be broadly referred to as statutory laws , which are, again, written laws enacted by legislative bodies. In addition to statutory laws, business organizations (as well as individuals) in the United States are subject to common , or case law (for our purposes, these two will be used synonymously),which are created through judicial opinion and have the same legally binding effects as laws created in statutes. Case law is written by judges (as opposed elected lawmakers) in response to a specific case before the court––typically when no statute exist to govern the case, or when the court needs to interpret a particular statute in a manner not expressly contemplated by that statute. It is important to note that the federal system of statutory law (written by the U.S. Congress), regulations (written by federal regulatory agencies and emanating from specific statutory laws granting specific powers to individual agencies), and case/common law (written by federal judges) is effectively duplicated by individual states: state legislative bodies write state statutory laws , state regulatory agencies write state regulations ,and state judges write state case laws . Hence, from the standpoint of risk management and compliance, business (and other) organizations need to adhere to both federal and state laws, keeping in mind the earlier-mentioned supremacy of the former. Whereas earlier in this course, in the context of risk assessment, we expressly differentiated between two types of threats–– risk (which is an estimable threat) and uncertainty (which is not estimable)––when considering compliance-related matters, we need to distinguish expressly between risk and liability . From the standpoint of business management, liability is a subset of risk; more specifically, it falls under a general category of downside exposures. Broadly defined, it encompasses anything that puts an individual or a group at a disadvantage or creates a hindrance; in a somewhat narrower context of business activities, liability is an expression of a legally binding obligation or responsibility. Perhaps the most obvious example of business liability is debt, as exemplified by corporate bonds, a commonly used mechanism that allows business organizations (as well as other entities, such as municipalities) to borrow money in the marketplace. In that sense, corporate bonds represent an obligation (i.e., a
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- Summer '19
- Law, U.S. Securities and Exchange Commission