By John Filar Atwood
The SEC should continue to invest in both RegTech and FinTech, even if the benefits from such investments will be years down the road, according to SEC Commissioner Michael Piwowar. He urged the Commission to be open to change and to foster the many potential uses for distributed ledger and other technologies, which could include streamlined regulatory reporting, more efficient trading, and lower cost capital formation.
In remarks at the 2018 RegTech Data Summit, Piwowar noted that RegTech is still not a well-defined term. In his view, it covers the use of technology by regulators to fulfill their duties, and by regulated entities to streamline their compliance efforts and reduce legal and regulatory costs. For example, using blockchain technology and artificial intelligence tools could allow the easy and secure transferal of critical regulatory data to multiple federal agencies, he said.
XBRL data. He believes the most important application of RegTech is the collaboration between private and public actors to take advantage of existing technologies. He cited the example of the use of XBRL data in regulatory filings. The XBRL requirements were intended to improve the usefulness of financial statement and risk/return summary information to investors, analysts, third-party information providers, filers, the Commission staff, and other data users, he noted. He believes the machine reading of data has enhanced the reusability, quality, and timeliness of information processing for producers and consumers of information, as well as regulators.
Piwowar also discussed current efforts underway at the SEC in the area of RegTech that are likely to provide benefits in the years to come. One example is the EDGAR redesign program, which is a multi-year cross-Commission initiative to develop and deliver a next-generation electronic disclosure system.
MIDAS. The Commission also has been at the forefront of RegTech in the area of equity market structure, he said. In 2013, the SEC introduced the Market Information Data Analytics System (MIDAS) to analyze “big data” generated by the equity markets. The MIDAS system allows the Division of Trading and Markets to monitor market behavior, understand market events, and test hypotheses about the equity markets with a high level of precision, he noted.
In addition to the internal use of MIDAS, the SEC has made a number of data series available to the public on an analytical platform that supports research tools such as Python and Jupyter Notebook, Piwowar stated. He hopes that data scientists and economists will use MIDAS data to conduct analyses that can be shared with the Commission, and increase its insight into the operation of the equity markets.
Piwowar also discussed the development of the consolidated audit trail (CAT). From a regulatory perspective, the CAT will represent a major advancement in the ability of the Commission and the national securities exchanges and FINRA to surveil the markets and protect investors, he said. He acknowledged that as a technological matter the CAT is very complex, and that developers still face challenges from the creation of the system itself to the protection of any personally identifiable information that will be contained within the system.
Enforcement benefits. One area of RegTech where the SEC is seeing tangible rewards is in the technological capabilities of the Division of Enforcement, Piwowar said. Investments in cutting-edge data analytics are allowing the enforcement staff to be more efficient in its investigations and more aggressive in uncovering fraud, he noted.
This includes systems such as the Advanced Relational Trading Enforcement Metric Investigation System (ARTEMIS), which was designed by the Commission’s staff to combine historical trading and account holder data with other data sources to enable longitudinal, multi-issuer, and multi-trader data analyses. ARTEMIS is used by the Market Abuse Unit Analysis and Detection Center to detect insider trading and market manipulation activities, Piwowar said, and is one of many advanced technologies that the SEC is deploying in its efforts to address fraud in the securities markets.