SEC 2019 Fintech Forum

McGuireWoods LLP

Members of the SEC’s Strategic Hub for Innovation and Financial Technology (“FinHub”) and experts in Fintech came together on May 31st for the SEC’s public forum focusing on distributed ledger technology and digital assets.  As a whole, the panelists grappled with the challenge of regulating an emerging technology that does not fit neatly within the current regulatory regime.  The SEC’s stated goal is to regulate without inhibiting innovation. Throughout the Forum, the SEC staff encouraged industry participants to engage with the SEC Staff as partners to achieve that goal.

Setting the Stage

The SEC – in remarks by Valerie A. Szczepanik, Senior Advisor for Digital Assets and Innovation and Associate Director in the SEC’s Division of Corporation Finance and the head of FinHub, Chairman Jay Clayton, and Commissioner Hester Peirce – emphasized the importance of regulators engaging with the industry and innovators in the Fintech space. This type of substantive engagement is necessary to advance the regulator’s knowledge and understanding of the industry in order for it to be an effective regulator and to enhance – and not stifle – innovation and opportunities.

The Forum largely consisted of four panel presentations: 1) Capital Formation Considerations; 2) Trading and Markets Considerations; 3) Investment Management Considerations; and 4) Industry Trends in Distributed Ledger Technology (“DLT”).

Capital Formation Considerations

The first panel focused on the use of digital assets in capital formation. In his introduction of the panel, the Director of the Division of Corporation Finance stated that there is tremendous potential for digital assets to facilitate capital formation.  He noted, however, that the Commission Staff would benefit from issuer engagement on many important issues, including disclosure, accounting issues, and the rights of token holders.

The panel covered many issues, including whether or not tokens are securities. They noted that, given the nature of digital assets, there will be instances when digital assets constitute a security and instances when they do not.  The Staff referenced its recently released “Framework for ‘Investment Contract’ Analysis of Digital Assets,” which reviews digital assets through the lens of the Howey test. One of the more interesting observations was the concept that digital assets can evolve – that is, they can have characteristics of a security at the outset of a project, but then lose those characteristics as a project is established.

Given the SEC’s framework, many observers questioned whether a digital asset could ever be anything other than a security.  On April 3rd of this year, however, the SEC staff issued the TurnKey Jet (“TKJ”) no-action letter. In determining that the TKJ token was not a security, the SEC identified a number of factors including, among others:

  • TKJ would not use funds from token sales to develop the Platform, Network or App, which would all be operational when the tokens were sold;
  • Transfers would be restricted to TKJ Wallets;
  • Tokens would be immediately available to purchase air charter services when sold; and
  • Marketing the tokens would focus on their functionality for purchases and not their value as a potential investment opportunity.

Other issues that the discussed included:

  • The possible the tokenization of stocks, which could simplify and streamline clearance and settlement.
  • The ability to develop smart contracts to facilitate compliance with customer identification and know your customer obligations by programming AML and KYC rules into a smart contract.
  • The challenging custody issues that digital assets present and the fact that they are currently managed in different ways, including use of “wallets” (or “under the mattress”) and in a company’s Treasury operations.

Trading and Markets Considerations

This panel focused on the complexities of trying to regulate a secondary market involving digital assets.  The SEC regulates all exchanges, regardless of whether the trading platform is centralized, decentralized, or a hybrid platform.  All exchanges are required to register with the SEC.

The Director of Trading & Markets set the stage for the panel. He referenced the “Statement on Digital Asset Securities Issuance and Trading” issued on Nov. 16, 2018, by the Divisions of Corporation Finance, Investment Management, and Trading and Markets after a series of enforcement actions involving offers and sales of digital asset securities, investment vehicles investing in digital asset securities, and secondary trading of digital asset securities. The Director noted that technology does not define the regulatory obligations, but rather the activity in which the actor is engaging defines the obligations.  Lastly, the Director noted the need for regulators to balance innovation with investor protection.

The panel addressed several issues facing the secondary markets, including finality of transactions, custody, and the presence of numerous state and federal regulators with different regulatory requirements. Some of the panel’s observations included:

  • There is a challenge to finality in the secondary market. While the financial markets want a clear idea of finality, the concept is less clear in the realm of digital assets. The panel pointed out that finality in the cryptocurrency space will need to be defined.
  • DLT has tremendous potential to reduce the settlement cycle. As the settlement cycle decreases, the volume of securities available to be loaned out decreases. This would likely impact securities financing and collateral management.
  • Custody can be particularly challenging in the digital asset space. The type of controls will evolve. For example, if one agent has a key but needs two other keys to access the asset, the first agent would not have custody of the asset. The panel noted the phenomenon of Air Drops, where someone who holds a particular digital asset might be gifted another asset simply by virtue of holding the initial asset. The panel also noted the challenges with “forks” in various digital assets.

Investment Management Considerations

Many funds have an increased interest in holding digital assets.  Funds wishing to do so face numerous challenges, including custody, valuation, transparency, liquidity, and potential manipulation of digital asserts.

Where innovation is important, so are protections.  The panel discussed principals-based regulation as the most rational way to apply regulations to ever-changing technology. Points made by the panel included:

  • Custody is an issue for any fund wishing to hold digital assets because investment companies and investment advisers have custody requirements and holdings must be custodied with a “qualified custodian.” How does a custodian hold a digital asset without transferring ownership to the custodian? The panel discussed options to answer this question. There was consensus that the custody issue should ultimately be solvable.
  • A more challenging issue is meeting AML and KYC requirements. The encryption and anonymity of distributed ledger technology conflict with the central requirements of AML/KYC.
  • The panel also discussed issues arising from independent audit requirements. How can an auditor prove the existence of digital assets? Proving ownership of digital assets may require transferring them. Transferring the assets, however, entails some risk, because there is risk every time an asset is moved.
  • On January 18, 2018, the SEC’s Division of Investment Management staff published an open letter to the ICI and SIFMA seeking to engage the industry on fund innovation and cryptocurrency. The Staff sought input on several issues facing investment companies and investment advisors seeking to integrate digital assets into their holdings. In its request, the SEC staff sought industry input on the following issues: valuation, liquidity, custody, arbitrage (for ETFs), and potential manipulation and other risks.

Distributed Ledger Technology Innovations: Industry Trends and Specific Use Cases for Financial Markets

The Director of the Office of Compliance Inspections & Examinations (“OCIE”) noted that OCIE reviews technology in examinations by assessing (1) what is the technology designed to do, (2) how is it implemented, and (3) how do the firm’s compliance systems and written supervisory procedures address technology.  He noted that OCIE strives to stay ahead of technology issues by: (1) achieving transparency through outreach, (2) using forums to listen to firms, and (3) tracking new technology through examinations.  Finally, he noted that advisers are treading carefully in the digital assets space, with only 650 advisers indicating an intent to trade in digital assets.

The panel kicked off with a discussion of the challenges of regulating in this space. In a sense, the panel noted that there has been an attempt to build regulatory controls onto a permission-less system, in effect, tethering back or controlling a system that was not designed to operate in that way. Critical areas impacted are privacy, AML, and dispute resolution.

  • Privacy and identity management. The panel explored the privacy and data security aspects of using “zero knowledge proof” and how the ability to provide certain information without handing over the personal confidential information could meet verification goals and actually be more secure and protect privacy interests than current practices do.
  • The panel noted that FinCEN had recently reaffirmed the application of its requirements to virtual currency transactions when they issued guidance on May 9, 2019. The panel acknowledged that there was a need to know who one is transacting business with and what they are doing – “regulating the on and off ramps.” But they noted that these are all solvable issues.
  • Dispute resolution. While noting that smart contracts are not designed to have a dispute resolution backstop, the panelists noted that there could be a way to build such a mechanism into smart contracts. One example mentioned was to have a third key that goes to an arbitrator. This would enable a code that would tie back to the requirements in the legal world.

The panel also noted the different ways that blockchain and distributed ledger technology come into play regarding assets. The panel discussed: (1) native tokens, where the token is the value (e.g., Bitcoin), (2) asset backed tokens, where the asset is held elsewhere, including in a regulated entity as custodian, and (3) high quality liquid assets (e.g., basket of securities where ownership may change where the technology, custodian arrangement and legal concepts provide nimble transfers and reduce balance sheet drag).


The SEC’s staff’s Fintech conference was a good demonstration of the critical importance that regulator, business, and technology engagement. The potential for this new technology to innovate and revolutionize capital formation and value exchange is undeniable. The success of the technology and the platforms and ultimately reaching their full potential will depend on the participants and the stakeholders ensuring that it works.  The business, counter parties, investors, the general public acceptance build off of trust, avoiding systemic breakdowns, and having non-intrusive guardrails. Accomplishing this with engagement by the innovators in this space with the regulators that are responsible for those guardrails – investor and market protection – makes sense.

The full webcast can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© McGuireWoods LLP | Attorney Advertising

Written by:

McGuireWoods LLP

McGuireWoods LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.