The SEC’s Strategic Hub For Innovation And Financial Technology




Posted by on January 15, 2019

The SEC’s Strategic Hub For Innovation And Financial Technology- Today is the first of a Lawcast series talking about the SEC’s new Strategic Hub for Innovation and Financial Technology (FinHub).

in mid-October the SEC launched a Strategic Hub for Innovation and Financial Technology (FinHub).  The FinHub will serve as a resource for public engagement on the SEC’s FinTech-related issues and initiatives, such as distributed ledger technology (including digital assets), automated investment advice, digital marketplace financing, and artificial intelligence/machine learning.  The FinHub also replaces and consolidates several SEC internal working groups that have been working on these matters.

According to the SEC press release on the matter, the FinHub will:

  • Provide a portal for the industry and the public to engage directly with SEC staff on innovative ideas and technological developments;
  • Publicize information regarding the SEC’s activities and initiatives involving FinTech on the FinHub web page;
  • Engage with the public through publications and events, including a FinTech Forum focusing on distributed ledger technology and digital assets planned for 2019;
  • Act as a platform and clearinghouse for SEC staff to acquire and disseminate information and FinTech-related knowledge within the agency; and
  • Serve as a liaison to other domestic and international regulators regarding emerging technologies in financial, regulatory, and supervisory systems.

Although I’m sure FinHub supports engagement in all FinTech areas, the website itself is broken into four categories: (i) blockchain/distributed ledger; (ii) digital marketplace financing; (iii) automated investment advice; and (iv) artificial intelligence/machine learning.  Under each category the SEC has tabs with information such as regulations, speeches and presentations, opportunities for public input and empirical information.

Blockchain and distributed ledger generally refer to databases that maintain information across a network of computers in a decentralized or distributed manner.  Blockchains are often used to issue and transfer ownership of digital assets that may be securities, depending on the facts and circumstances.

Clearly illustrating the need for regulatory initiatives, the “regulation, registration and related matters” tab under blockchain/distributed ledger is limited to public speeches, testimony and pronouncements, and enforcement actions, and not regulation (as none exists).  Although certainly we in the community give public statements weight, they actually have no binding legal authority.  The speeches, testimony and pronouncements that the SEC lists in this tab, and as such the ones that the SEC gives the most weight to, include (i) Chair Clayton’s testimony on virtual currencies to the Senate banking committee; (ii) William Hinman’s speech on digital asset transactions; (iii) statement on potentially unlawful online platforms for trading digital assets; and (iv) remarks before the AICPA National Conference of Banks & Savings institutions.

Providing more legal guidance are the enforcement proceedings.  The SEC has provided a running list of all cyber enforcement actions broken down by category including digital asset/initial coin offerings; account intrusions; hacking/insider trading; market manipulation; safeguarding customer information; public company disclosure and controls; and trading suspensions.