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Fintech, Meet the U.S. Regulators

Finance and Securities

U.S. regulators, the Financial Industry Regulatory Authority (FINRA) and the U.S. Commodity Futures Trading Commission (CFTC) are increasingly introducing initiatives to help bridge the gap between the securities industry and the regulators, specifically in regards to the increasing use of financial technology (fintech). Regulators, such as the Securities and Exchange Commission, have had trouble regulating fintech, specifically the use of bitcoin and blockchain technology. As we have discussed in previous blogs it is difficult for them to regulate technology that by nature is unregulated. For instance, in regards to bitcoin, traditional currencies are regulated by governments (which can be seen in instances of inflation), yet bitcoin is decentralized and not regulated by any type of entity or government. Governments and regulators face huge hurdles in attempting to regulate what is known as the ‘dark economy’ and other areas of fintech. Therefore, it is significant that regulators are collaborating with the securities industry to implement regulations that mirror and do not inhibit new technology while still maintaining a fair and efficient market for investors.

The CFTC have initiated LabCFTC with the goal to “promote responsible FinTech innovation and fair competition for the benefit of the American public.” From cryptocurrencies to cloud computing, the CFTC aims to implement forward thinking regulations that coincide with “today’s digital markets.” This includes collaborating with the fintech industry to promote the use of technology and monitor trends. The benefits of implementing new technology in CFTC markets domestically and overseas will create a more efficient market for investors. However, the CFTC does recognize the challenges that come along with new technology, including any potential security threats.

In June, FINRA launched the Innovation Outreach Initiative “to foster an ongoing dialogue with the securities industry that will help FINRA better understand … fintech … innovations and their impact on the industry.” Robert W. Cook, FINRA President and CEO, highlighted the importance of the Initiative in helping FINRA gain a better understanding of fintech innovations in order to safeguard the market and investors, but also be flexible towards an evolving industry. FINRA has even launched a FinTech webpage on their website which discusses fintech’s impact on broker-dealers, investors, and financial institutions, along with any regulations. FINRA established a team run by the Office of Emerging Regulatory Issues who gather fintech intelligence, ensure FINRA rules and programs are compatible with the evolving nature of the fintech and securities industry, and work with regulators domestically and overseas.

Yesterday, July 13, 2017, FINRA hosted the Blockchain Symposium in New York to give regulators and industry leaders the opportunity to collaborate and examine the use of blockchain technology, current and future regulations, and the implementation of Distributed Ledger Technology (DLT) applications. Regulatory and industry leaders such as Robert Cook, Ryan VanGrack from the SEC, Jennifer Peve from the Depository Trust & Clearing Corporation, and James O’Neill of Fidelity Investments were featured speakers at the symposium. The key to these agencies regulating the changing securities and fintech industry is through open communication with industry leaders. The growth of technology has been miles ahead of the regulations. The collaboration and joint efforts from regulators, and the securities and fintech industry will create greater efficiency in the market without being unduly hindered by any draconian regulations.

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