S2:E10 | Lessons From The Front Lines - Thoughts on Crypto From the SEC and FINRA | Compliance In Context

The Securities Compliance Podcast: Compliance In Context

Welcome back to the Compliance In Context Podcast! Today’s podcast features the fourth in our Lessons From The Front Lines series which focus on real-life, tough-to-tackle subjects that other industry professionals and regulators have faced on the front lines of our industry. To help guide us through today’s conversation, we welcome in Neil Maitra and Haime Workie. Whether it’s issues in AI, the cloud, custody, DEPs, crypto, gamification, and everything in between, the SEC’s FinHub and FINRA’s Office of Financial Innovation sit at the forefront of what’s happening in our industry. So sit back, relax, and enjoy the crypto conversation!

Interview

• Background on FINRA’s Office of Financial Innovation
• Discussion of recent whitepapers from FINRA OFI
• Artificial intelligence (AI) in the securities industry
• What are the implications of the cloud for the securities industry
• Background on SEC’s FinHub
• Digital assets and custody
• Breaking down Bitcoin ETPs
• An in-depth look at gamification

Quotes:

“Our Office of Financial Innovation was actually only opened up about two and a half years ago. And its overarching mandate is really to facilitate innovation in a way that supports investor protection and market integrity, which is the overall mandate of FINRA.” – Haime Workie

“So this idea of being excited about something new that you’re doing, that carries a bit of risk. But also having the ability to step back a little bit and say, ‘Look, you know, here are things we need to think about before we take on this new adventure.’ In a similar vein, as technology gets introduced to the marketplace, there’s a lot of excitement to be had about the potential ways it can benefit the investor, the firm, the marketplace. But it’s also important to step back and think about what are the risks that are being introduced into the system? And what are the implications of those?” – Haime Workie

“[I]t's [SEC’s FinHub is] really kind of an all-arms group within the Commission itself...it really coordinates the SEC oversight and response regarding emerging technologies and financial regulatory and supervisory systems. Including specifically I think in the areas of distributed ledger technology. blockchain which forms are large part of our work, but also automated investment advice or what what's popularly called robo-advice digital marketplace financing and artificial intelligence machine learning. Those are also areas where we where we often get involved.” – Neel Maitra

“But what's been really introduced I would say, and it's fairly recent introduction in the past four or five years and kind of ramping up in the in the past one or two years, is this process where you have these app-based systems that provide nudges or provide influences that potentially steer investors a certain way. Many of these nudges or influences maybe things that are short of recommendations. But at least in my view, they are definitely designed to elicit certain types of behaviors and what we've heard is frequently firms will do A-B type of testing to see what type of behaviors are being elicited and which things, which ways of kind of having the APP interface is more effective in terms of eliciting those types of behaviors.” – Neel Maitra

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