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SEC wants big data tools for monitoring and enforcing cryptocurrency market compliance

Move is latest series of steps by regulator to bring clarity and less confrontational approach to regulations enforcement

SEC

The SEC (via Shutterstock).

The U.S. Securities and Exchange Commission wants to know if the technology to help it monitor major cryptocurrency blockchains for risk and regulatory compliance issues exists.

The SEC is not looking to buy big data analytics tools at this time, but characterizes its interest as “conducting market research to determine the availability and technical capability,” of the tools presently available on the market, it announced in a notice on Jan. 31

What the SEC wants to know about is the “ability to provide the requested data but also an overview of the processes used to extract the data, convert the data into a reviewable format, and the verification steps to ensure there is no loss in data completeness and accuracy due to the data transformation tools and processes applied.”

The software it wants would also make the data easy for SEC staff to read and understand on an ongoing basis, and would provide insights about that data—notably identifying who the data belongs to—as well as a way of ensuring the data is accurate and complete.

The request is the latest in a series of recent moves that underline the agency’s commitment to bringing order, clarity, and oversight to the regulation of the cryptocurrency and digital asset market, as well as moving away from the confrontational approach that have characterized its actions in recent years. The SEC’s Office of Compliance Inspections and Examinations (OCIE) identified digital assets as one of its priorities for 2019, including firms’ portfolio management, internal controls, and asset security among its focuses.

The SEC recently promised “plain English” guidance for developers and investors that will make clear if their cryptocurrencies and initial coin offerings (ICO) qualify as securities under the law, according to “The Distributed Ledger: Blockchain, Digital Assets and Smart Contracts,” a report issued in November 2018 by the white shoe law firm Skadden, Arps, Slate, Meagher, and Flom.

That recent promise by William Hinman, director of corporation finance at the SEC, highlights what Skadden calls the agency’s “recent efforts to encourage engagement and collaboration with developers regarding their blockchain-related projects rather than emphasizing enforcement actions.”

Skadden’s report also pointed to the October 2018 creation of the SEC’s Strategic Hub for Innovation and Financial Technology (FinHub) under Valerie Szczepanik, the SEC’s senior adviser for digital assets and innovation and associate director in the Division of Corporation Finance. FinHub’s goal is to “provide a clear path for entrepreneurs, developers and their advisors to engage with SEC staff, seek input, and test ideas,” she was quoted as saying.

Leo Jakobson, Modern Consensus senior editor, is a New York-based journalist who has spent much of the last 15 years covering the employee engagement and recognition business. Before that he covered the East Coast side of the Internet boom and bust, and wrote about politics in New York City. Disclosure: Jakobson owns no cryptocurrencies.

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