Fostering Innovation One Year Later

REGULATION AND COMPLIANCE

Fostering Innovation One Year Later

Just over one year ago, FINRA launched the Innovation Outreach Initiative as part of FINRA360, our comprehensive organizational review. The Initiative began an ongoing dialogue with industry participants, investor advocates and policy makers centered on the implications of financial technology (fintech) for the broker-dealer industry.  

FINRA has already taken a number of steps to improve our understanding of how fintech is transforming the securities industry and to provide information to investors and our members about these developments.

For example, over the past year, FINRA has formed a Fintech Industry Committee (composed of fintech experts in public, private and academic sectors) and conducted a series of fintech regional roundtables in New York, San Francisco and Dallas. Through our efforts, FINRA has been able to learn more about how fintech is helping to transform various broker-dealers’ business lines, including investment banking, wealth management, trading and research. These discussions have also addressed how broker-dealers are exploring and leveraging new technologies such as artificial intelligence, cloud storage and blockchain to enhance their overall operational infrastructure and compliance functions.

All of these fintech-related changes are contributing to an evolving landscape for broker-dealers’ operations.  With these changes come exciting new opportunities, but also the potential for various risks to investors and the markets. Accordingly, FINRA has been considering how we can continue to support fintech innovations that benefit investors and the capital markets, consistent with our mission of investor protection and market integrity.

To this end, FINRA has issued reports and Investor Alerts on a number of fintech areas, highlighting associated risks and benefits related to applicable innovations. We have authored papers on crowdfunding, distributed ledger technology, digital investment advice and automated investment tools. We have also posted Investor Alerts on data aggregation, initial coin offerings, and considerations for investing in cryptocurrencies. In addition, FINRA has actively engaged our fellow regulators, both domestic and international, to share insights and approaches to fintech-related issues.  

As FINRA considers taking further steps, however, we are mindful of the desire expressed by market participants to have a forum to provide views concerning what actions may be helpful.

That’s why this week, FINRA took another step forward in turning ideas into action by issuing a Special Notice on Innovation. The Notice seeks public comment regarding what steps FINRA can potentially take to further support innovators consistent with our regulatory responsibilities and role as a guardian of investor protection and market integrity. Additionally, we are asking for feedback on three specific areas that were raised during the course of the Innovation Outreach Initiative: the provision of data aggregation services, supervisory processes concerning the use of artificial intelligence, and the development of a taxonomy-based machine-readable rulebook.

Comments will be accepted until October 12 and can be submitted here. We encourage all interested parties to participate.