On December 3, 2020, the SEC announced that FinHub (the Strategic Hub for Innovation and Financial Technology) was being upgraded to an independent office. Acknowledging the importance of the all things fintech (emerging technologies and innovation in financial services), the SEC stated that creating a stand-alone office:
“[S]trengthens the SEC’s ability to continue fostering innovation in emerging technologies in our markets consistent with investor protection. The office will continue to lead the agency’s work to identify and analyze emerging financial technologies affecting the future of the securities industry, and engage with market participants, as technologies develop.”
FinHub’s existing director, Valerie Szczepanik, will continue to serve in that capacity, and will “coordinate the analysis of emerging financial innovations and technologies across the SEC’s divisions and offices and with global regulators and will advise the Commission and SEC staff as they develop and implement policies this area.” Importantly, under the current structure, Szczepanik will report directly to the SEC’s Chairman.
In 2018, the SEC created FinHub in recognition of the importance of engaging with the industry on fintech issues, in order to support innovation within the regulatory framework. The SEC created FinHub within the Division of Corporation Finance. The SEC’s goals for FinHub were two-fold: (1) create a resource for information about the SEC’s views and actions in the fintech space and (2) facilitate the SEC’s active engagement with innovators, developers, and entrepreneurs.
Over the past two years, FinHub has undertaken a number of important initiatives, including, on May 31, 2019, hosting a forum specifically covering distributed ledger technology and digital assets, publishing a framework for analyzing whether a digital asset is a security and hosting, on an ongoing basis, virtual P2P meet-ups to engage directly with innovators, entrepreneurs, or firms on designated topics, including artificial intelligence (AI).
Other regulators have similarly recognized the importance of fintech innovation and the need to have staff focused on the unique issues that impact regulatory functions and issues across the organization and the industry. In April 2019, FINRA created an Office of Financial Innovation. The mandate of the Office, as stated by FINRA, was to be a “central point of coordination for issues related to significant financial innovations by FINRA member firms, particularly new uses of financial technology (fintech). The move will further enhance FINRA’s ability to identify, understand and foster financial innovation in the markets in a manner that strengthens investor protection and market integrity.” State regulators, through the North American Securities Administrators Association (NASAA), also continue to engage with the industry on similar developing issues through their annual symposium on fintech and cybersecurity.
The SEC’s transition of the FinHub to a stand-alone department reporting directly to the SEC Chairman signals the importance of the Staff’s continued engagement with those in the fintech industry, as well as the permanent impact fintech will have on the financial industry. This move also highlights the multi-dimensional impact of fintech issues. In the past two years, FinHub has engaged with the industry on many regulatory compliance issues, including securities and broker-dealer registration, customer protection rule requirements, and other investor protection issues. While FinHub has routinely engaged the relevant subject matter experts throughout the SEC on those issues, moving the function from the Division of Corporation Finance to a stand-alone office reinforces the industry wide impact of fintech issues. We expect this approach and emphasis will continue under a new administration and new Chairman of the SEC.
