Eugene Grygo, Chief Content Officer, FTF News
A recurring message emerged from several of the sessions at our DerivOps conference in Chicago earlier this week.
It’s simply this: financial services firms should take advantage of a new, more proactive dynamic between them and regulators. Basically, firms should feel free to tell regulators what they’re doing, especially with so many disruptive phenomena and technologies emerging almost daily.
Even though the rate of regulation has pretty much remained steady, it’s clear that innovation is rearing its many heads: blockchain/distributed ledgers; cryptocurrency transactions; robotic process automation (RPA); machine learning; artificial intelligence applied to incumbent systems; the push to T+1 or T+0 settlement; cloud-based systems integrated with cutting-edge apps; and even systems and applications that originate in the cloud — to name some of the top trending technologies.
Conventional wisdom says that end-user firms should let their industry nonprofit lobbying and standards organizations represent their concerns and interact with the regulators. No one is suggesting that these organizations be disintermediated. However, end-user firms have sometimes found that the direct approach is more effective for them. It’s also true that sometimes the industry organizations have become more preoccupied with creating a bureaucracy that can bring progress to a halt.
In addition, the regulators have been consistently saying that they want to make themselves more available to industry participants, and many firms have been taking them up on the offer.
For instance, the SEC’s whistleblower program has been very successful in establishing direct links with industry players. In fact, the SEC just awarded $2.1 million to a former company insider who helped the regulator launch several enforcement actions.
“The SEC has issued nearly $90 million in whistleblower awards in the past month alone,” says Jane Norberg, chief of the SEC’s Office of the Whistleblower, in a statement. “As these awards demonstrate, we continue to receive high-quality information from whistleblowers, which we use to detect and prosecute securities violations and safeguard investors.” The program, begun in 2012, has handed out more than $266 million to 55 individuals.
Along those lines, FINRA has a long list of enforcement actions on its website that have come from referrals. The full list is available here. In other efforts, the Federal Reserve Board has recently begun accepting applications for its Community Advisory Council. More information is available here.
Beyond whistleblowing, firms can also influence policies.
At DerivOps, a representative of a major regulator was repeatedly soliciting direct contact from conference participants to help with the formulation of policies that will have direct impacts upon derivatives processing.
On a more practical front, it’s also wise to reach out to regulators especially for complex issues such as cryptocurrencies and instruments, says Bart Chilton, the former CFTC commissioner who gave the keynote presentation at DerivOps. It makes more sense for firms to engage with regulators during the due diligence stage for a new offering or for a compliance clarification. In fact, if the interactions go well, the regulators may call you about a complex matter rather than knock on your door.
“There’s no reason not to speak to them,” Chilton said during his talk. “These are government employees, paid by taxpayers. By and large, it’s worth the effort.”
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