The Hill has published a thoughtful op-ed on how the new chairman of the SEC should prioritize his time. One of the suggested priorities was the regulation of fintech, but that was narrowly defined as robo-advisors. The author of the piece is the head of the CFA Institute, so to be fair, he is squarely focused on the advisor segment. And we think that is just ONE piece of the pie, but fintech, as we have asserted in every way we know, is so much larger than one segment. So, we also suggest that there be further oversight of black box and quant trading strategies, and some level of regulatory structure on digital currency trading. And then how about ICOs and new digital bank charters and protecting investors from shady crowd-investing deals? So yes, we agree there should be more regulatory oversight on robo-adisors. But that’s just one small piece of the fintech pie that Jay Clayton will have to manage as fintech continues to expand at break-neck pace.
“The newly appointed chairman of the U.S. Securities and Exchange Commission (SEC), Jay Clayton, has a lot on his plate. As the new financial cop on the block, he is picking up where his predecessor, Mary Jo White, left off. From the record number of enforcement actions during her tenure, to the rules written under her aegis, White was laser-focused on modernizing and improving the asset management industry…
Regulation of financial technology
A recent CFA Institute survey of investment professionals found that many see emerging technologies, such as automated, or “robo,” advisers as providing important investment services to investors who have limited assets to manage. But these benefits were not without serious risks. In particular, there were concerns that the underlying algorithms may produce recommendations directing clients toward products that benefit service providers rather than actual clients.
They also noted that the untested nature of the technologies in stress scenarios could worsen, rather than aid, the investment outcomes for investors — similar to last year’s flash crash of the British pound. To further complicate matters, survey respondents felt that the oversight and regulation of financial technologies is not on par with the regulatory requirements imposed upon traditional advisers.
To prevent unnecessary losses for investors, the SEC should step up its examination and enforcement of existing adviser regulations as they apply to automated advisory firms. The commission should also clarify for these firms that they are subject to the same client-loyalty requirements that apply to traditional advisers…”