Earlier today the Securities Exchange Commission (SEC) hosted a Fintech Forum (“Forum”) at its Washington, D.C. headquarters to discuss technological innovations across the financial services industry. The SEC has taken a proactive initiative to explore blockchain technology and its vast uses in the financial services industry. SEC Chair Mary Jo White is a supporter of fintech development stating that “fintech innovation has the potential to change the face of the financial services industry and through the Commission’s Fintech Forum, we will explore the various issues and challenges surrounding these groundbreaking technologies. There are real opportunities for investors and our markets to benefit from fintech developments and, together with the industry, we must examine ways to ensure our regulations keep pace with these rapidly evolving innovations.”
With this vision, the SEC put together this Forum to continue conversations between different players in the financial services industry. The Forum consisted of four panels featuring speakers ranging from regulators, academia, fintech companies and organizations, as well as financial service businesses. The agenda for the forum included topics related to “financial technology innovation in the financial services industry.” Panelists were invited to “discuss issues such as blockchain technology, automated investment advice or robo-advisors, online marketplace lending and crowdfunding, and how they may impact investors.”
The Forum’s second panel, Impact of Recent Innovation on Trading, Settlement, and Clearance Activities, focused on blockchain technology and its ability to transform various facets of the financial services industry. The panel was moderated by Valerie Szczepanik, Head of the SEC Distributed Ledger Technology Working Group and Assistant Director of the SEC Division of Enforcement. It included the following panelists:
- Brad Peterson, Executive Vice President and Chief Information Officer/Chief Technology Officer at Nasdaq
- Chris Church, Chief Business Development Officer, Digital Asset Holdings
- Mark Wetjen, Head of Global Public Policy at DTCC
- Professor Emin Gun Sirer, Cornell University
- Grainne McNamara, Principal in the Capital Markets team at PricewaterhouseCoopers
The panel began with a brief description of blockchain technology and its many use cases some of which include real time financial transmissions, art registries, securities transactions, voting, medical/clinical trial record keeping, supply chain, and visual grids for energy. Chris Church from Digital Asset Holdings emphasized the need to look past the initial hype when considering the many benefits of blockchain technology. Instead of buying into the general belief that blockchain will eliminate jobs of entire industries, he believed it was more crucial to understand that certain sectors will not become obsolete but just have roles or procedures altered to fit within the new technology. He opined that the companies who would lose out or become less competitive are those who do not make changes or make efforts to learn about this technology. The positive transformative changes are sure to follow, he emphasized.
The discussion then focused on what regulators should be focusing their attention and expertise on in order to be in the best position to create rules for blockchain-related companies. Professor Sirer from Cornell University listed economics and computer science as perhaps the two more academic related fields, but also encouraged regulators to use community-based resources with the caveat that in such a newly developing arena, it is easy to find resources that are not credible or published without proper documentation. Chris Church added his sentiment that regulators should speak to each other when deciphering issues with blockchain technology and how best to regulate it. Creating multiple levels of regulations or conflicting rules does little to encourage growth and innovation or protect consumer because companies are left with little guidance in what to do.
Perhaps the most pressing question of the entire panel was that of current hurdles to the mainstream adoption of blockchain technology. Grainne McNamara of PricewaterhouseCoopers offered four “Ps” of any adoption curve that blockchain technology would most certainly have to go through before she could see her company or clients adopt it: proof of concept, prototype phase, pilot phase, and lastly the production application phase. Most use cases involving blockchain technology are just in their infancy stage and it is only a matter of time before they become more mainstream—not for a lack of substance or importance, but just because they have yet to go through all of these phases. Chris Church stated three main elements that have to coexist before he believes any use cases become adopted into the mainstream: network effect, standards, and regulations. Notably, “standards” is an element largely in the hands of the blockchain community itself—by holding themselves to a higher standard when creating ICOs for example will go a long way towards the underlying technology becoming more widely accepted into mainstream application. Professor Sirer added that privacy and security are also concerns for mainstream adoption.
Each member on the panel spoke with a positive impression of blockchain technology, its many positive uses in the currency financial services sector, and the ability for growth and eventual adoption on a larger scale. Towards the end of the panel, Valerie Szczepanik stated a very pragmatic way to think about blockchain technology in her answer to a question, why the blockchain? She frankly told her client that not everything needs to be on the blockchain, but industries that it would work best for are those when multiple individuals share, validate, and update data; intermediaries add complexity and/or slow things down, the data or transaction is time sensitive, and there is a multi-party dependency work flow. The panel ended with the general feeling that adoption of blockchain technology was just a matter of time and a question of “when, not if.”