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Regulation and Compliance > Federal Regulation

SEC Chief White: Fintech May Need New Regulation

By Melanie Waddell

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New regulations may be needed to keep up with the “speed and impact” of fintech developments, SEC Chairwoman Mary Jo White said Monday.

Speaking at the agency’s first Fintech Forum before White announced her departure as SEC chairwoman, White said that potential fintech regulation by the agency should be both “thorough and forward thinking,” and that the agency’s fintech working group will be focusing on “specific, tailored recommendations.”  

Indeed, SEC Commissioner Michael Piwowar said at the event, which was held at SEC headquarters in Washington, that the Commission “should take the lead” on fintech regulation.

Global investment in fintech companies is estimated to be over $19 billion last year, White said, so “it is safe to say that fintech is well on its way to playing an important role in the future of the securities industry.”

(Related: SEC Chief White to Step Down in January)

White said the “rapid developments, private investment and growing attention from regulators” regarding fintech means regulators have an obligation to understand, monitor and encourage innovation in the space.

Recommendations from the fintech working group could encompass staff guidance, concept releases, proposed rulemaking, or “improved communications about existing regulations and interpretations that are not widely understood among innovators,” White said. The working group, however, which includes personnel from across the agency, may also conclude that, at least in part, the SEC’s “existing regulatory approach is already suitable to address new developments,” she said.

White said that the working group will be soliciting additional input from investors, innovators, and the “many other stakeholders” in these new technologies—which includes crowdfunding, cybersecurity, blockchain, as well as automated advice. “We are at the early phase, not the end, of our outreach,” with the Fintech Forum being an important part of that process, White said.

The fintech working group will also be guiding the SEC on whether “clarity” on existing regulatory requirements are needed to “help foster responsible innovation,” White said.

Piwowar said the SEC should take the “lead regulatory role” in the fintech space as “many of the firms pursuing fintech are already SEC registrants, and others are providing services that are squarely within the Commission’s oversight, such as investment advice and trading and settlement functionalities.”

The SEC, he continued, is also the “only agency with a mission that explicitly includes facilitating capital formation. In that regard, our recent crowdfunding initiatives provide us the relevant experience and expertise for understanding the regulatory challenges of small and medium-sized enterprises and their investors.”

He also said the Commission’s 11 regional offices, “several in areas that are centers of fintech innovation,” could serve as “intake centers for fintech startups seeking regulatory information and guidance.”

(Related: SEC Chief White to Step Down in January)

Matt Burton, CEO and co-founder of Orchard Platform, welcomed the SEC as the lead regulator, stating that there “hasn’t been clear guidance on which agency” will regulate fintech. “Good ground rules are needed to make this industry grow,” he said. “We have to put the best practices in place now or we’ll have to deal with the consequences later.”

As to the robo-advisor space, White said that the agency is looking at how advisors that provide investment advice with limited, if any, human interaction: provide appropriate disclosures so that their clients understand their services; and obtain information to support their duty to provide suitable advice.

“We also are considering how automated-advisors are designing their compliance programs to address the particular challenges relevant to providing automated advice and how these firms safeguard client data and address business continuity in the event of a disruption.”

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