Thursday, October 26, 2017

FinTech opportunities and challenges mapped out at FIA Expo in Chicago

By Brad Rosen, J.D.

In his address before the 33rd FIA Futures & Options Expo held in Chicago, Illinois, CFTC Chief Innovation Officer, Daniel Gorfine, provided updates for LabCFTC initiative launched earlier in the year, surveyed the fintech landscape including significant areas of innovation, and identified related opportunities and challenges, as well as the evolving role of the CFTC.

After his prepared remarks, Gorfine led a related panel discussion on the boom in FinTech startups which was comprised of a cross-section of industry experts representing incubators, venture capital investors and public sector entities. The session, titled "The Geography of Innovation: Which City Is Best Positioned to Support Capital Markets Fintech? A Transatlantic Debate," explored the relative merits of some the world’s leading innovation hubs.

LabCFTC. Established in May 2017, LabCFTC is the cornerstone of the commission’s FinTech efforts and initiatives. Its mission is to cultivate a forward thinking regulatory culture, lead the agency to become more accessible to emerging technology innovators, discover ways to harness and benefit from FinTech innovation; and become more responsive to rapidly changing markets.

At time of the launch of LabCFTC, Chairman J. Christopher Giancarlo noted, “the CFTC can no longer be an analog regulator in an increasingly digital world. LabCFTC is intended to help us bridge the gap from where we are today to where we need to be—Twenty-First century regulation for 21st century digital markets.” Gorfine also serves as the director of Lab CFTC.

Gorfine noted that since the LabCFTC was launched, staff has met with innovators in New York City and Washington, D.C., and plans on further meetings in Chicago. Silicon Valley, Austin, and Boston in the near future. In total, Gorfine’s group has met with over 100 entities ranging from startup to established financial institutions to leading technology companies.

LabCFTC has also released its first primer titled A CFTC Primer on Virtual Currencies, a publication which seeks to provide an overview of the cryptocurrency markets, identify the CFTC’s role educate the public regarding an potential risks associated with these instruments. Gorfine noted other primers are in the offing.

FinTech landscape. As a definitional matter Gorfine observed that, “FinTech innovation today covers broad swaths of financial activity—ranging from efforts to disrupt components of retail banking and wealth management to aspects of capital markets, trading, and market infrastructure.” On the retail-facing side, he noted these activities include payments, lending, crowdfunding, virtual currencies, and robo-advisory. On the capital markets side, Gorfine has witnessed significant activity involving distributed ledger and blockchain technologies, smart contracts; artificial intelligence and machine learning; algorithmic trading; cloud computing, and digital identity.

Gorfine is optimistic regarding the future stating “[t]here is little doubt that FinTech innovation has the potential to—and already is—benefitting the American public. Whether through increased efficiency, lower transaction costs, or improved access, our society stands to improve based on such innovation.” Nonetheless, at the same time he remains cautious, observing “[t]hese innovations are not without their risks, however. The disintermediation of traditional actors or their functions will strain rules written for a different, analog era. Proper recognition of new actors in markets will necessitate regulatory consideration, though always with the careful balance of not prematurely stemming innovation.”

Panel Discussion. All of the panelists agreed with the initial comments of Jennifer O'Rourke, Illinois Blockchain Business Liaison, for the State of Illinois when she identified the four main ingredients for a successful local FinTech hub as including access to capital, clients, talent pipeline/prospective employees, and networks.

O’Rourke then went on to make a compelling case that Illinois fits the bill for all four criteria, and offered the biggest potential returns for venture investors, albeit she conceded it did not have the largest number of venture investors. Other panelists similarly highlighted these ingredients as they related to their respective locales, which included:
  • London. Brendan Bradley, Co-Founder of Seismic Foundry, located in London, U.K., pointed to a Britain’s very favorable regulatory and tax climate, and specifically cited the Financial Conduct Authority (FCA), and Bank of England’s regulatory sandboxes which take active steps to foster and support tech entrepreneurs. “We have institutions, investors, and start-ups. We simply have it all.” Bradley observed. 
  • Boston. Jean Donnelly, Executive Director of the Fintech Sandbox, noted that Boston has access to talent, by virtue of its extensive university presence, entrepreneurs, and emerging tech centers. 
  • Germany. Stephan Rienartz, Head of Product Development Lab for Deutsche Boerse, observed that Germany has access to very talented people, is known for its relatively low costs, as well as its strong connections to networks throughout continental Europe. 
  • New York City. Kyle Zasky, a partner with SenaHill Partners, a venture capital investor, pointed to New York City’s density of population, its cultural attractions and well as the city’s vast reservoir of investment capital as giving New York City a leg up compared to the competition. In closing, Zasky, in speaking of New York City, shared the familiar observation, “if you can make it here, you can make it anywhere.”

No comments: