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FinTech in a new SEC / Regulatory Environment

FinTech
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Monday, November 14, 2016, 6.38PM / SEC Commissioner Michael S. Piwowar  

Good morning. Welcome to all of you, especially the distinguished panelists. I want to thank Chair White for holding today’s forum, as well as being forward-thinking about financial technology (“FinTech”) by creating the Commission’s first ever FinTech working group. In her opening remarks, Chair White already mentioned a number of staffers who helped make this forum happen. I also want to recognize Michael Liftik and Ryan VanGrack from the Chair’s Office for all their efforts in coordinating this event.

 

I am delighted that the Commission has convened this forum to discuss FinTech and, specifically, FinTech’s potential benefits to investors and our markets, the risks that FinTech may create, and the role of the Commission in fostering further FinTech innovations while staying true to our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.

 

FinTech is frequently lauded as a disruptive force that is transforming the financial services industry, and that is clearly true. On a recent trip to East Africa, I saw firsthand the transformational impact of FinTech. In a region where a significant portion of the population does not have access to the creature comforts we take for granted in the United States — let alone bank accounts — the pervasive M-Pesa technology facilitates payment for services and money transfers on early generation cellular telephones. Financial inclusion rates have grown dramatically and crime rates have dropped substantially since the introduction of that technology.

 

But I hope that today’s discussion will go further than simply celebrating the successes, momentum and future promise of FinTech. I encourage the panelists to tackle the difficult regulatory questions that FinTech presents. We should also explore various constructs that have been proposed, both domestically and internationally, to encourage FinTech innovations without creating undue risks to the marketplace or imposing artificial limits on activities (e.g., regulatory sandboxes).

 

As is obvious to any market participant or observer, our financial regulatory structure is a fragmented, sometimes contradictory, alphabet soup. A recent study by Georgetown University’s McDonough School of Business Center for Financial Markets Policy correctly points out that the most common regulatory struggle for FinTech firms in the United States “does not concern a specific regulation or regulator, but rather the extremely complex process of navigating multiple regulatory portals.”[1] The great potential of FinTech should not be hindered by our current regulatory structure.

 

Therefore, I believe the Commission should take the lead regulatory role in the FinTech space. Many of the firms pursuing FinTech are already SEC registrants, and others are providing services that are squarely within the Commission’s oversight, such as investment advice and trading and settlement functionalities. And we are the only agency with a mission that explicitly includes facilitating capital formation. In that regard, our recent crowdfunding initiatives provide us the relevant experience and expertise for understanding the regulatory challenges of small and medium-sized enterprises (“SMEs”) and their investors. Finally, the Commission has 11 regional offices, several in areas that are centers of FinTech innovation, that could serve as intake centers for FinTech startups seeking regulatory information and guidance.

 

All that is to say that the SEC is uniquely situated to determine whether and how FinTech currently fits, and ultimately should fit, within a financial regulatory structure. Today’s forum is an important first step in that journey. Thank you.  

Footnotes 
[1] See The Complex Regulatory Landscape for FinTech: An Uncertain Future for Small and Medium-Sized Enterprise Lending, World Economic Forum White Paper (August 2016)  

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