In Madoff's case, he passed SEC audits, licensing requirements, etc with flying colours.
Licensing primarily works by raising the barrier to entry, discouraging 'bad actors' from signing up because society-wise, 'bad actors' are more distributed among poorer demographics and are unable to afford licensing.
Not overly so. He did in some cases. In others, the SEC had plenty of warnings, concerns, but chose not to act on them (which is a different issue entirely - 'why not?').
Licensing primarily works by raising the barrier to entry, discouraging 'bad actors' from signing up because society-wise, 'bad actors' are more distributed among poorer demographics and are unable to afford licensing.