SEC Strategic Hub for Innovation and Financial Technology (FinHub)

On October 18, the U.S. Securities and Exchange Commission (SEC) announced the launch of the agency’s Strategic Hub for Innovation and Financial Technology (FinHub). But what is the “FinHub”?

What is the FinHub?

The FinHub is meant to serve as a resource for public engagement on SEC issues and initiatives focused on and related to financial technology (“FinTech”) fields.  Essentially, the FinHub is a portal that aims to streamline communications between the SEC and the public and assist FinTech companies with issues related to compliance with securities industry laws, rules and regulations and interaction with their products.  These issues and initiatives include, but are not limited to:

Distributed Ledger Technology (Including ICOs and Other Digital Assets)

In recent years, the SEC has encountered numerous issues relating to blockchain and distributed ledger technology (DLT). These terms generally refer to databases that maintain information across a network of computers in a decentralized or distributed manner. Typically, these networks use cryptographic protocols to ensure data integrity. Blockchains are often used to issue and transfer ownership of digital assets, including possibly securities.

For more on blockchain technology and digital assets, our Initial Coin Offering (ICO) basics blog is a good place to start.

Automated Investment Advice

Automated investment advisers or “robo-advisers” are investment advisers that typically provide asset management services through online, algorithmic-based programs. The SEC has regulated these types of market participants since their introduction.

Digital Marketplace Financing

Digital marketplace financing generally refers to financing methods that do not use traditional financial institutions as intermediaries. The financing can be in the form of loans (often called online marketplace lending) or in the form of equity or equity-like securities (often called crowdfunding). The SEC has been addressing digital marketplace financing activities related to funding portals, platforms, and investments for some time.

Please see our previous blogs on crowdfunding and funding portals for more information.

Artificial Intelligence/Machine Learning

Artificial Intelligence (AI) and machine learning refer to methods of using computers to mine and analyze large amounts of data. As this field grows, so does the SEC’s involvement in the associated technological innovations.

For more on AI/machine learning, please see our RegTech posts addressing Surveillance and Monitoring and Investor Risk Assessment.

What will the FinHub do?

As proposed, the FinHub will both publicize information produced by the SEC, as well as let innovators. entrepreneurs and developers ask questions or clarify rules and regulations. The FinHub will:

  • serve as a resource for public engagement, as mentioned earlier. It will provide a portal for securities industry members and the public to engage directly with SEC staff on innovations, ideas, and technological development;
  • be used to publicize information about the SEC’s FinTech activities and initiatives;
  • allow the SEC to engage with the public through publications and events. (Planned events include a FinTech Forum focusing on distributed ledger technology and digital assets slated for 2019.);
  • act as a platform and clearinghouse for SEC staff to acquire and disseminate FinTech-related information and knowledge within the agency; and
  • serve as a liaison to other domestic and international regulators regarding emerging technologies in financial, regulatory, and supervisory systems.

The FinHub will be overseen by Valerie Szczepanik, the SEC’s Senior Advisor for Digital Assets and Innovation and Associate Director in the Division of Corporation Finance, and will be staffed by SEC officials who have expertise in and have previously worked on FinTech-related issues.

For more information on the FinHub, visit the new FinHub page.

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