We are happy to announce that Dialogue with the Regulators: Navigating Blockchain & Fintech was a great success. A big thank you to everyone who made it.
We welcomed senior regulators from the SEC, FINRA, CFPB, and Texas State Securities Board; blockchain trailblazers including Gemini, Paxful, Coinbase and financial service heavyweights such as Blackrock, UBS, Sheppard Mullin, Wilmington Trust, and more to discuss the intersection of blockchain, fintech and compliance.
Here are some of our team’s key points learned. Before we get started we must disclose that the following does not, and is not intended to, constitute legal advice or direct quotes from any of the regulators or entities. The following are merely takeaways, in no particular order, that the Globex team observed from listening to the discussions.
- The Texas State Securities Board shared that enforcement actions went from single digits from 2017 to over a hundred enforcement actions this year.
- Regulators are being much more proactive in enforcement. Instead of waiting for complaints and calls, the regulators are actively seeking out fraud before this happens. This makes it critical for firms to establish robust firm policies and procedures surrounding KYC/AML compliance.
- The CFPB is working on some technology upgrades in order to make it easier for companies to narrow down which rules and regulations may apply to what they’re doing.
- The SEC is putting a large focus on FinHub to assist fintech firms and facilitate the SEC’s active engagement with innovators, developers, and entrepreneurs. They did note that companies do need to be specific in the areas of concern they’re seeking guidance on. Many of the compliance officers on the panels shared that they have ongoing conversations with regulators as their companies progress.
- Recent SEC enforcement actions have been on the sale of unregistered securities, most recently issuing an emergency cease and desist order for Telegram’s $1.7 billion dollar offering through subsidiary TON Issuer Inc. Comments echoed that issuers need to follow the securities framework in place.
- Following the above, regulators repeated that their ultimate goal is to protect investors, to protect the ‘grandmother’ investor, new investors, etc from fraud. Another term repeated often was proper disclosure, that there needs to be the right disclosures in place for investors to better understand the opportunity, i.e. what’s the money going to be used for, who are the principals, what do the smart contracts actually do?
- The type of fraud that regulators are seeing now mirrors the same fraud seen in past emerging markets.
- There’s been observation that in the blockchain industry sandboxes, which are safe spaces for startups or established companies to test new technology-based financial services in a live environment for a limited time, have not made room for traditional financial service companies to participate.
- There have been four generations of reporting to regulators. 1 — By file sent by email, 2 — Through web portals & uploads, 3- Secure File Transfer Protocol 4 — Big data and AI integrated into operating systems. We have Fintech, Regtech…now Suptech, or supervisory technology which refers to the use of innovative tech by supervisory agencies to support supervision and digitize some aspects of the regulatory process.
- The issuer needs to be clear on why they are issuing a token versus a traditional security.
- Fast paced tech-companies have a hard time adjusting to stringent securities law as you can’t “launch an MVP” of an exchange or other products that involve securities. It has to be right the first time which calls for a different development process.
As overall fintech solutions evolve, the regulatory landscape will continue to face enormous challenges in keeping up with technology disruption.
And while compliance isn’t necessarily a sexy topic, the harmony between industry leaders and regulators is critical in building the foundation that will shape the future of fintech and blockchain’s role in it.
So how do we get there as an industry — we continue to create open dialogues to better understand both sides’ concerns and ideas in order to move in-step together on actionable solutions.
#DWR2019 was the first in a series of similar style events Globex is hosting with industry leaders and regulators. Connect with us on twitter @HorizonGlobex and visit https://www.horizon-globex.com/ to learn more.