FINRA Requests Comment on Fintech Innovation in the Broker-Dealer Industry

WASHINGTON — FINRA today issued a Special Notice seeking comment on how it can support financial technology (fintech) innovation consistent with its mission of investor protection and market integrity. The announcement builds on an initiative FINRA launched last year to improve communication with the securities industry around fintech. In addition, FINRA requests comment on certain fintech areas, including the provision of data aggregation services, supervisory processes concerning the use of artificial intelligence, and the development of a taxonomy-based machine-readable rulebook. The Notice requests comment by October 12, 2018.

Under FINRA360, FINRA has enhanced resources dedicated to this rapidly developing area of the industry, establishing an Innovation Outreach Initiative last year to foster an ongoing dialogue with the securities industry and to better understand fintech innovations and their impact on the industry. As part of this dialogue, a number of market participants expressed a desire for FINRA to solicit broader feedback regarding the effects of any FINRA rules or administrative programs on fintech innovation. The Special Notice is intended to provide an opportunity for such feedback.

The Innovation Outreach Initiative is led by FINRA’s Office of Emerging Regulatory Issues which, in collaboration with a cross-departmental team, developed the Notice after engaging with market participants through the initiative. The Notice summarizes steps already taken by FINRA through the initiative in support of fintech innovation and requests comments on potential additional measures.

“The Innovation Outreach Initiative has helped us better understand fintech developments across the broker-dealer industry,” said FINRA President and CEO Robert Cook. “As we consider taking additional steps, it is important to broaden the dialogue to hear how any FINRA rules or administrative processes could be modified to better support fintech innovation without adversely affecting investor protection or market integrity.  We also hope to learn about any potential areas of innovation that would benefit from a greater focus on investor protection safeguards.”

ABOUT THE INNOVATION OUTREACH INITIATIVE

To foster an ongoing dialogue with the securities industry and to better understand fintech innovations, FINRA established an Innovation Outreach Initiative in June 2017. FINRA created a cross-departmental team that is responsible for carrying out the initiative and working closely with industry participants to gain real-time intelligence on fintech issues. The team is tasked with creating and managing a Fintech Industry Committee to facilitate a continuous discussion on fintech developments and how FINRA's rules and programs interact with technology innovations. The team is also responsible for conducting regional roundtables to provide a forum for market participants (including FINRA members and non-members) to share thoughts, ideas, and concerns regarding fintech topics; developing internal training programs on fintech topics for FINRA staff; enhancing collaboration with other regulators (both domestically and internationally); and developing timely publications on fintech topics.

The Innovation Outreach Initiative enables FINRA to better track fintech developments across the rapidly changing industry environment in order to support innovation in the industry while maintaining investor protection and market integrity.

The Innovation Outreach Initiative has already resulted in a number of positive changes, including:

• FINRA formed a Fintech Industry Committee composed of both large and small member firms, non-member firms offering fintech-related services, as well as committee observers from the SEC and the North American Securities Administrators Association (NASAA), to provide a platform for ongoing dialogue and analysis of fintech developments.
• FINRA held a blockchain symposium in July 2017, a San Francisco fintech regional roundtable in September 2017, a Dallas fintech regional roundtable in November 2017 and a New York City fintech regional roundtable in April 2018.
• In response to feedback we received through our discussions with market participants since the start of Innovation Outreach Initiative, FINRA is exploring the development of a report highlighting the implications of regtech for the securities industry. FINRA has also issued related Investor Alerts:
  • Know Before You Share: Be Mindful of Data Aggregation Risks;
  • Don’t Fall for Cryptocurrency-Related Stock Scams; and
  • Initial Coin Offerings: Know Before You Invest.

ABOUT FINRA

FINRA is a not-for-profit organization dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.