SEC Chair Mary Jo White Addresses Regulatory Challenges Presented by FinTech
At the forum recently hosted by Stanford Law School’s Rock Center for Corporate Governance and the SEC’s San Francisco Regional Office, entitled “The Silicon Valley Initiative: Protecting Investments in Pre-IPO Issuers”, SEC Chair Mary Jo White addressed the challenges that recent and rapid developments in FinTech present to securities regulators.
In her keynote remarks, Chair White noted that because innovations in digital finance “have the potential to transform how our markets operate in virtually every respect”, such innovations “compel us to think carefully about how best to protect investors so they – and we – can have confidence in this growing and changing landscape.” Speaking about blockchain technology in particular – which “has the potential to modernize, simplify, or even potentially replace, current trading and clearing and settlement operations” – Chair White referenced the SEC’s approval last December of Overstock.com’s Form S-3 registration statement whereby Overstock’s blockchain-based equities trading platform, called tØ, would issue securities on bitcoin’s blockchain, and noted that such technology could eventually “eliminat[e] the need for intermediaries and allow settlement on a nearly instantaneous basis.”
Going forward, the SEC will continue to “closely monitor the proliferation of [blockchain] technology”, and will examine the various issues that it raises for regulators. Among the SEC’s areas of focus is whether blockchain applications require registration under existing regulatory regimes, such as those applicable to transfer agents. The SEC noted in their Advance Notice of Proposed Rulemaking and Concept Release issued last December that “[a] new technology, the blockchain or distributed ledger system, is being tested in a variety of settings, to determine whether it has utility in the securities industry.” The SEC went on to raise a set of questions about the application of blockchain technology to the securities industry, including “How would transfer agents ensure their use of or interaction with such a system would comply and be consistent with federal securities laws and regulations, including the transfer agent rules?”. Nonetheless, the set of questions concerning the use of blockchain technology was buried on page 145 of the 208-page Release, and was only question 70 of the 170 questions posed by the SEC in that Release. The deadline for commenting on the release has been extended to April 14, 2016.
Overall, Chair White’s comments indicate that, even though the SEC may not plan to regulate bitcoin itself as a security, there are many other aspects and uses of the blockchain technology that are, and will continue to be, in its crosshairs. Unfortunately, the SEC’s approach at the moment seems to be finding ways to apply the current securities regulations to this innovative technology, rather than exploring significant modifications of the regulations to facilitate technological advance.
