Blockchain won’t just change regulation, it will reshape the SEC

After Trump won the US presidential election, the US Securities and Exchange Commission (SEC) Chair Mary Jo White announced that she would leave her position after the end of the Obama administration, which was related to Trump's claim to repeal the Dodd-Frank Act. Recently, the SEC discussed how much change will happen in the future at a blockchain panel discussion event.

The panel discussion was organized by the SEC’s blockchain working group, which is looking closely at how blockchain technology might change regulators themselves.

Faced with increasingly complex regulatory issues, financial regulators will need to master a new set of skills.

According to discussions yesterday at the SEC's headquarters in Washington, regulatory conditions will become more diverse.

During a panel discussion on how distributed ledgers will impact the post-trade space, Cornell University professor Emin Gün Sirer told the audience:

“It can be a daunting field because it’s so diverse and so vast. It encompasses fields like economics, computer science, and so on. Bridging the gaps can be difficult.”

It is reported that the SEC is recruiting information technology experts for its infrastructure department, as well as positions such as compliance and review.

To acquire these skills, Sirer suggested that regulators should work with relevant professional organizations, such as MIT’s Digital Currency Initiative and the Institute for Cryptocurrency and Contract Research (IC3) hosted by Cornell University.

Sirer believes the main obstacle regulators may face in acquiring these skills is the existence of blockchain-based decentralized autonomous companies (DACs, also known as DAOs).

“In such a fast-moving space, there isn’t a lot of proper documentation on these systems, and in some cases the developers just say ‘code is law,’ ” he said. “So there isn’t a single description or definition of what an investor or user should see, and they expect you to be able to read the raw code.”

It is worth noting that the two topics of token issuance and the recently popular public token sale (ICO) were not mentioned at the meeting, but the market generally believes that both will be regulated by the SEC.

Three major obstacles facing financial institutions

Even with an increasingly clear path to implementation, financial institutions still face three major hurdles to blockchain adoption, according to Chris Church, chief business development officer at Digital Asset Holdings (DAH).

The first is the lack of network effects, he said. Financial institutions are reluctant to adopt blockchain because of the "chicken and egg" dilemma. The second obstacle is the lack of standardization, but this problem seems to be slowly disappearing.

And the third obstacle is perhaps the most pertinent one: the regulators themselves.

Church said regulators are so used to the existing regulatory schemes that they are unlikely to abandon them.

However, the news that Chairman Mary Jo White announced her resignation also paved the way for President Trump's plan to repeal many financial regulatory regulations.

While Trump may have other regulatory plans, Church offered his views to regulators on his own initiative. “Regulators should turn to other people,” he said.

“One of my recommendations is if you’re a regulator, you should talk to other regulators. Some of them are already doing some very good work,” Church said. “It would be great to see the SEC do this. The British, Canadians, Singaporeans, Australians, they have groups that are working on this.”

Mark Wetjen, global director of public policy at the Depository Trust & Clearing Corporation (DTCC), agrees with some of Church’s views, saying that some things the SEC does will change dramatically because of blockchain.

Wetjen believes that risk management and transparency are not just the focus of the SEC, but also include the U.S. Commodity Futures Trading Commission (CFTC), the Federal Reserve, and other regulators around the world.