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Finra Probes Fintech Innovation in Broker-Dealer Space

By Alex Padalka August 1, 2018

Self-regulator Finra is seeking input from broker-dealers about how it can support innovation in financial technology while ensuring investor protection and the integrity of the markets, according to a press release from the industry organization.

The areas Finra wants to address include data aggregation services, supervision related to the use of artificial intelligence and the development of a taxonomy-based rulebook that’s machine-readable, the regulator says. The public comment period is open until Oct. 12, according to Finra.

This week’s announcement is the result of an initiative the regulator launched two years ago to improve its communications related to fintech with the industry, Finra says.

Last June, the regulator set up an innovation outreach initiative toward the industry, led by its Office of Emerging Regulatory Issues, as part of its broader Finra360 self-review and overhaul program, according to Finra. That initiative led several industry participants to suggest Finra obtain feedback about how its rules and programs around fintech affect broker-dealers, the regulator says.

The team responsible for the outreach initiatives also conducts regional roundtables open to Finra members as well as non-members, develops internal training on fintech for Finra staff, puts out publications on the topic and collaborates with other regulators both in the U.S. and abroad, according to the press release.

The initiative has already led to the creation of a committee made up of member and non-member firms that offer fintech-related services and another committee made up of observers from the SEC and the North American Securities Administrators Association, Finra says.

Last July Finra hosted a symposium on blockchain, and over the past year has held regional roundtables in San Francisco, Dallas and New York, according to the press release.

Finra’s fintech outreach team is also compiling a report on regulation technology’s implications for the industry and has put out three investor alerts covering data aggregation risks, cryptocurrency-related stock scams and investing in initial coin offerings, the regulator says.

Robert Cook (Getty)

“As we consider taking additional steps, it is important to broaden the dialogue to hear how any Finra rules or administrative processes could be modified to better support fintech innovation without adversely affecting investor protection or market integrity,” Robert Cook, Finra’s president and CEO, says in the press release. “We also hope to learn about any potential areas of innovation that would benefit from a greater focus on investor protection safeguards.”