FINRA, an independent non-governmental regulator for security firms, has been looking at distributed ledger systems for some time now. Releasing a special notice recently, they have introduced some guidelines and predictions on how they believe the blockchain-based securities industry will develop in the near future.
In July of this year, FINRA came out with a special note on the future of fintech technology, particularly blockchain. The purpose of the note was to make clear on how FINRA can support:
“… fintech developments related to data aggregation services, supervisory processes, including with the use of artificial intelligence, and the development of a taxonomy-based, machine-readable rulebook.”
Just last year FINRA held their own Blockchain Symposium to gain a better understanding of how blockchain could affect the financial industry. The conference was a follow-up to a report they issued on the matter titled, “Distributed Ledger Technology: Implications of Blockchain for the Securities Industry.”
The Special Note
The new fintech space will require data aggregation services to better utilize the data available from institutions, including broker-dealers, all in one place. For example, FINRA mentions how the UK Financial Conduct Authority and the Bank of England have been working on better digitizing existing financial data and making them “machine-readable” so they are more easily processed and aggregated.
FINRA is currently reviewing, as per the report, on the possibility of “machine-readable rulebooks” which can be processed and built on a blockchain using smart contracts. It is FINRA’s opinion, agreeing with the UK Financial Conduct Authority and the Bank of England, that this new technology alongside blockchain technology has the potential to “fundamentally change how the financial services industry understands, interprets, and then reports regulatory information.” This is especially relevant for securities, which FINRA specializes in regulating.
FINRA is currently looking to further its advisory role in the cryptocurrency space and has told the firms that it currently overseas to report any activities relating to cryptocurrencies. In the short note, FINRA outlines all the aspects of cryptocurrencies that must be reported so that the regulator can assess their viability in the current framework of securities.
To further see these conditions, and questions posed by the special notice, be sure to read the full text.
Do you think more regulatory firms dealing with securities will soon need to have a separate division dedicated to cryptocurrencies? Let us know what you think in the comments below.
Image courtesy of FINRA.