High Tech in High Finance | SEC’s FinHub, Compliance Automation

Compliance Conference Takeaways

High Tech in High Finance | SEC’s FinHub, Compliance Automation

April 19,2021


As in other industries, technological change is driving innovation in asset management. At the 2021 IAA Investment Adviser Compliance Conference, a breakout session titled Adapting Technology to Achieve Compliance Efficiency and Results addressed the SEC’s support for technology initiatives and the use of tech tools in compliance monitoring.

Jennifer McHugh

The SEC’s Jennifer McHugh talked about the Commission’s Strategic Hub for Innovation and Financial Technology – better known as FinHub. McHugh is the Division of Investment Management’s delegate to FinHub.

FinHub is a “one stop shop” for “people outside the SEC who are interested in offering a new technology-based product or understanding the regulatory implications of serving as a robo-adviser or incorporating a new form of artificial intelligence into their investment selection process or marketing process,” McHugh explained.

“A lot of the people who come to [FinHub for advice] come from a coding background,” she added. “They’re technology providers first; they speak a lot of engineering speak.”

FinHub has four areas of focus:

  • digital marketplace financing
  • blockchain / distributed ledger technology
  • automated investment advice
  • artificial intelligence / machine learning
Alex Gavis
Fidelity Investments

Since FinHub was launched in 2018, much of the focus has been on blockchain and digital assets, McHugh explained. However, an area that has gotten increasing attention in the past year is digital marketplace financing or “DFi,” which replaces traditional financing with “programmatic, technology-based access to capital,” she added.

In December 2020, FinHub became a stand-alone office in the SEC, reporting to the Chair, signaling its growing importance in the industry and the regulatory landscape.

In the same session, Alex Gavis of Fidelity discussed his firm’s initiatives in compliance technology or “complitech.” “We’ve been looking at this area quite a bit,” he explained.

In the robotics area, automated bots can now scan a workflow database for expired content, escalating them for additional review. “Rather than have a human go through the database, we can have a bot go through the database, and that’s a good control,” he noted. Similarly, bots can monitor email traffic, looking for messages that include account information or unencrypted Social Security numbers.

A machine learning module can help identify complaints for faster processing. “The module learns over time what complaint language looks like,” Gavis said.

Augmentation technology can help with communications and advertising review, he continued. This technology can do a “first pass” review that flags issues for the compliance reviewer. “That also can work for individuals who may be creating the content in the first place,” he noted.


TAGS: FinTech, ColumnsCompliance Conference




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