New tech challenges require research and outreach to stakeholders, regulators say

Regulators from around the world gathered at FIA Boca 2019 in Florida on Wednesday to discuss the emerging challenges they’re facing, particularly in the area of technology.

Paul Andrews, secretary general of the International Organization of Securities Commissions, said he doesn’t think regulators can take a uniform global approach to new technologies. IOSCO is “technology neutral” and mainly wants to ensure that new technology advances market integrity, protects investors and doesn’t create systemic risk, he said.

Eric Pan, director of the Office of International Affairs at the Commodity Futures Trading Commission, said “the time is not right for uniform approaches to technology” and that a diversity of approaches helps regulators learn from how various jurisdictions approach new technologies.

Self-regulatory organizations could offer a “promising way forward” on technology as they have the benefit of reacting faster because of their proximity to the market and the expertise of participants, Pan said.

Meanwhile, the CFTC is harnessing its LabCFTC initiative and has visited places such as Silicon Valley and Singapore “to get out of the classic bubble that we’re in” with regard to technology, he said. Fintech companies have less experience with regulators than traditional firms do, and regulators therefore need to make an effort to communicate with those technology companies, he said.

Lise Estelle Brault, senior director of fintech, innovation and derivatives at Quebec’s Autorité des marchés financiers, discussed her agency’s internal “lab” that allows for experimentation on issues such as initial coin offerings. The AMF produced the “AMFCoin,” a cryptocurrency that can’t be purchased, to help it understand ICO issuance and enforcement, Brault said.

Enforcement is vital, she said, because “if you can’t stop bad actors from moving into your jurisdiction, you’re not credible anymore.”

Paul Willis, technical specialist for commodities at the UK Financial Conduct Authority, discussed the FCA’s fintech sandbox, and he said such initiatives face the misconception that they pick “winners” and enable participants to conduct unregulated business. He noted that the FCA’s sandbox takes applicants from a wide range of backgrounds and focuses on identifying innovation, letting participants develop their business models or technology in safe environment that doesn’t interact in a significant way with the economy.

Jun Mizuguchi, deputy commissioner for international affairs at the Japan Financial Services Agency, talked about distributed ledgers, which he said present disintermediation-related challenges such as the concentration of ownership to a small number of people whose identities aren’t known publicly. Enforceability in this area will be difficult, and regulators might face more difficulty in achieving outcomes by “conventional” means, he said. Regulators need to be proactive in their outreach to engineers, miners and other stakeholders to better understand the DLT system’s structure, he said.