SEC Leaders Debate Benefits and Risks of FinTech Innovation in the Securities Markets
Commentary by Steven Lofchie
SEC Chair Mary Jo White reported that an SEC FinTech working group is evaluating recent developments in the use of (i) "robo-advisers," (ii) blockchain, (iii) securities-based crowdfunding, and (iv) online marketplace lending. Chair White stated that she established the FinTech working group to "focus on specific, tailored recommendations . . . about what the SEC should do to provide clarity on existing regulatory requirements and help foster responsible innovation." She reported that the "working group will be soliciting additional input from investors, innovators and the many other stakeholders in these new technologies."
SEC Commissioner Michael S. Piwowar encouraged the panelists to "tackle the difficult regulatory questions that FinTech presents," and to "explore the various proposed constructs" that would "encourage FinTech innovation without creating undue risks to the marketplace or imposing artificial limits on activities (e.g., regulatory sandboxes)." Commissioner Piwowar exhorted the SEC to "take the lead regulatory role in the FinTech space":
- many firms pursuing FinTech are already SEC registrants or otherwise fall within the SEC's oversight;
- the SEC is the only regulatory agency with a mission that includes facilitating capital formation explicitly;
- recent crowdfunding initiatives have helped to hone the SEC's expertise in understanding the regulatory challenges of small and medium-sized enterprises and their investors; and
- the SEC now has 11 regional offices, many of which are in areas that double as hubs for FinTech innovation, which could serve as intake centers for FinTech startups seeking regulatory information and guidance.
Commentary
The contrast between the SEC's take and that of banking regulators on FinTech is significant. The SEC's philosophy, as expressed by two of its three commissioners, is to encourage growth by clarifying regulatory requirements. Although the SEC wishes to serve as the "intake center" for the sharing of information, it does not seek to act as an arbiter of what FinTech products may be made available to the public. On the other hand, banking regulators see themselves as metaphorical drawbridges that may be raised whenever they find themselves uncomfortable with change. This contrast reflects not only the different missions of each group of regulators, but also their different cultures. One of the SEC's primary functions is to support economic growth, while banking regulators focus their attention chiefly on stopping whatever might go wrong.
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