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Regulatory Demands: Fintechs Caught in the Crossfire?

Regulation | Jun 5, 2024

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Podcast Insights: Hester Peirce on SEC Rule-making and Regulatory Demands

In a recent podcast interview hosted by Compliance Week titled "Regulatory Demands," SEC commissioner Hester Peirce, often known as "Crypto mom," is blunt in her criticism of the SEC's rule-making process. However, what does this signify for investors, innovators, and fintechs—the main participants in the game?

Transparency Concerns

"We've seen a flood of rulemaking come out of the SEC in the last year or two... I have some concerns that the Commission hasn't been as engaged in public outreach as it could be, and the best way to write rules is to get input from the people who are actually going to be complying with them...If we start treating it as a burden rather than a privilege to get the input of the public, then our rules just won’t be as good, and they won’t stand the test of time."

Peirce focuses her critique on the SEC's lack of public outreach. "We've seen a flood of rulemaking come out of the SEC in the last year or two," according to her, "I have some concerns that the Commission hasn't been as engaged in public outreach as it could be."

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Fintech companies, which are renowned for their agility and capacity for rapid adaptation, face difficulties as a result of this lack of transparency. According to Peirce, "the best way to write rules is to get input from the people who are actually going to be complying with them," therefore without clear communication and participation in the rule-making process, these restrictions may inhibit innovation and impair their capacity to benefit investors.

Protecting Investors, Not Stifling Innovation

"If a compliance officer is afraid to speak up... The focus should be on what the compliance officer did, not just on the outcome...Innovation is something that the SEC should be encouraging, not stifling."

Peirce goes one step further, emphasizing how these fintech companies may have a chilling effect on compliance officials. "If a compliance officer is afraid to speak up because they're worried about being blamed if something goes wrong," she contends, "The focus should be on what the compliance officer did, not just on the outcome." As Peirce notes, these officers may be reluctant to alert investors to any risks connected to novel financial products out of fear of incurring excessive responsibility, "leaving investors exposed." In the long run, this might make investors less protected.

See:  Balancing Fintech Innovation and Regulation

Perhaps Peirce's most important quote is "Innovation is something that the SEC should be encouraging, not stifling," which is a direct call to action for the agency. This is a clear message for entrepreneurs and fintech companies alike. Peirce contends that in addition to safeguarding investors, the SEC should promote an atmosphere that welcomes novel concepts and technological advancements.

Striking the Balance

"We need to be mindful of the costs of regulation, and not just the benefits. When we write rules, we should try to write them in a clear and concise way."

Peirce does concede that rules are necessary. "We need to be mindful of the costs of regulation, and not just the benefits," she asserts. "When we write rules, we should try to write them in a clear and concise way." As Peirce notes, laws that are unduly onerous and complicated can "put a strain on smaller fintechs and innovators," restricting their capacity to compete. They can prosper as long as laws are reasonable and clear, safeguarding investors in the process.

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Peirce is aware of the difficult balancing act. "The SEC needs to take a thoughtful approach to writing rules for this new and innovative area," she warns. Encouraging innovation while safeguarding investors must be balanced if the financial system is to remain healthy in the long run.

Closing Thought

The interview with Hester Peirce provides an insightful viewpoint on the difficulties faced by financial industry players. Her emphasis on encouraging innovation, emphasizing results over blame, and encouraging open communication are all in line with the goals of NCFA Canada and its members. The SEC can promote responsible innovation in the financial sector and eventually help all investors by pushing for a more balanced approach to regulation.


NCFA Jan 2018 resize - Regulatory Demands: Fintechs Caught in the Crossfire?The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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