Financial Markets Quality Conference 2019: FinTech and Financial Markets

we have a phenomenal panel here today we
have a Salvatore Ternullo from KPMG John Davidson from OCC Brent de Jong from
CastleLake and Emergent Tech Steve Utkus from Vanguard and Rob Cornish from
Gemini so we look forward to this fantastic discussion thank you very much
for joining us and why don’t we just start with a small introduction why
don’t you talk for one or two minutes about what KPMG or what your company is
doing what your role is in the firm and how it does that relate to FinTech for
example absolutely so my role at KPMG is it sits within our consulting business
obviously KPMG has a breadth of services that we offer to the market consulting
tax and our audit practice as well within the consulting business I run all
of our crypto asset digital asset services across a full lifecycle of
service offerings from strategy through capability design development
implementation and obviously risk security and compliance as well well I
guess if we’re going down the line I’m Brent de Jong I spend about half of my
time with CastleLake we’re registered investment advisor we manage 15 billion
dollars I run the special situations business so
do a lot of opportunistic investment to stress that investing
I’m also the chairman of Emergent Technology we’re a FinTech company 170
people across 14 offices around the world
we’re tackling things like digital payments and how do you fix identity
compliance connectivity and a number of things in order to make payments work on
a global basis right I’m Rob Cornish I’m CTO for Gemini so responsible for all
technology within gemini across our our infrastructure or application
development and all of our data management we have offices in new york
chicago portland and we’ve just recently opened up in london so manage the teams
that helped build the technology that supports Gemini and our company is
focused on buying and selling of digital assets as well as storing those digital
assets in a safe and secure manner so that’s what we do
I’m John Davidson I’m the chief executive officer of the options Clearing Corporation we
are the central counterparty for all of the options markets in the United States
as well as a number of futures markets so our role as a central counterparty is
to inter mediate the credit so the central or central limit order book
markets can actually function we are of course very keenly attached to
technology in general and financial technology as a designated by the
dodd-frank act systemically important financial market utility keeping up with
the innovation that the exchanges we’re responsible for providing service to is
a is a key part of our function and making sure that our technology is
sufficiently flexible to enable us to do that
I’m Steve Utkus from Vanguard we are of course one of the leading global asset
managers operating in a number of countries managing about six trillion
dollars yes the my role at Vanguard is I oversee a small research team that
studies investor behavior and in particular studies in a variety of
platforms and defined contribution systems in various countries on retail
investment platforms and increasingly we studied digital interactions much like
social media or shopping networks will study digital interactions we’re doing
that in the financial sphere and that’s actually how I met Alberto discussing
one of his papers on financial attention but he and I are working jointly to
study the dissemination at Vanguard the reason why I’m on this panel a hybrid
robo-advisor that we introduced in the u.s. in 2014 and we’re writing doing
some research on that okay thank you so much for self introducing yourself and
then so let me just start with some very broad questions so when I think about
FinTech in general I think about robo-advising blockchain technology I think
about machine learning what among these kind of disruptive changes you think are
gonna have a biggest impact on society going forward
and anybody sure I’ll start with just a you know I look at all three of them and
they’re already beginning to make an impact in the society in their various
ways you know I’m obviously gonna be a firm believer of blockchain given me but
given my role and obviously my reason for coming to join Gemini my belief is
that digital assets being able to be shared globally in a very efficient way
where people can have ownership of those assets it’s really important to society
if you think about us in the u.s. we are very fortunate to have a number of ways
that we can invest in different asset types and allocate you know our
resources if you look more globally that’s not necessarily the case and so
as I look at blockchain and its capabilities we see it’s something that
will help improve society if we can make that more readily available to others
and I give a lot of credit to also the Robo advisors and and that technologies
I think it does something very similar similar in allowing people to have access
to things that maybe you only had access if you had a certain size bank account
or if you you know paid for a wealth manager so some of these things I think
are changing the way that we that that we look at society as our society looks
at these technologies and the machine learning I would also say that for us we
use that to help us actually with fraud detection and when we’re bringing on
your users for AML and KYC aspects we use some of the newer technologies to
help with that aspect as well we are a regulated cryptocurrency exchange we
have a New York trust license so we’re not you know an unregulated exchange
which there’s many of them out there and we do have fiduciary responsibilities
to our clients I think in building on that and kind of hammering home and we
think about the disruptive potential of these technologies we look at technology
convergence so I think you described a specific use case where
Gemini is looking at on chain and off chain data and transactional information
and and when we think about watching as a data layer we look at how
data is actually being consumed on to that data layer and in the in the crypto
space we’re looking at transaction processing but if you think about this
technology more broadly you look at IOT breaking the pain between the physical
world and the virtual world and blockchain becoming that immutable data
structure that facilitates more effective efficient business
intelligence which is obviously derived from the implementation of machine
learning algorithms so I think the AML/KYC use case is something that that
we’ve specifically done a lot of work on and developing proprietary analytics
that are fit for purpose but you know when you think about that technology
convergence and that build of the next era of a tech stack it’s it’s really the
synergies that are created between those technologies that create the exciting
promise and also the potential for disruption yeah I totally agree it’s
that intersection that where these technologies mean with an emergent we
have IOT devices a blockchain and also AI machine learning and and it’s a you
know each of them are exciting in and of themselves but it’s when you can pull it
all together that you really have real trust and you know something really
verifiable and in there’s a you know this is becoming much more of a theme
kind of among us we’ve launched a token we call it G coin it’s one gram of a
responsible gold kilo bar how do you know it’s responsible gold because you
have an IOT that says it is how do you know that it’s a AML person because you
have the verification so you know it’s an were money transmitter company so a
little bit different but you know it’s very much the same space on things and
it’s that intersection that we find is really the exciting point okay so let me
take also a like step even more like back even more and so what are your
views regarding how US is adopting new technology so how do you think u.s. is
faring compared to China for example and what do you think are the greatest
barriers to technological adoption in the US right now for example well I
think the u.s. is actually leading the world in that regard yeah
and I think particularly in the financial markets technology has been
something that the US has done and has really enabled our ability to preserve
the deepest and most liquid financial markets in the world I I do think some
of these technologies don’t necessarily modify the fundamental operation of the
central limit order book exchange markets blockchain for example is
massively too slow to handle the transaction volume that we
see on the New York Stock Exchange or Nasdaq but they do offer some really
unique opportunities to solve some fundamental problems so I started also
in two trading floors in Chicago picking up executed paper orders bought
the trading floor and translating them so that a Hollerith card operator could
actually input it into the computer system for at that time Merrill Lynch so
the technology has come quite a ways then but if you think about distributed
ledger technology for a bilateral market right not one that has central
intermediation but it is institution to institution and you think about the
chain of investors so you start with an asset manager and you go to a custodian
and you go to a broker and you go to the marketplace and you go to the other
broker and you go to the custodian and you go to the asset manager and if each
of them has a different version of the transaction you’re going to have a lot
of people spending a lot of time ticking in time and not really being productive
the notion of having a single accepted message throughout that chain I think
really can be transformative but the thing about disruption you know I grew
up in Kansas and they can’t teach evolution there anymore but the whole
natural selection process and the financial markets there there’s a lot more noise about disruption from distributed
ledger technologies I think is realistic but there are a number of very very
useful both economically useful and socially useful applications for it and
institutions such as my own that are based on pretty old legacy technology
that are changing have to be in a position the the gentleman from Cboe
this morning talked about being on the bleeding edge well I don’t want to be
anywhere near the bleeding edge of technology but I want to be close enough
to the leading edge that we can adopt as our various constituents be they
broker-dealers clearing members or exchanges are adopting to these new
technologies so I I’m on the other side of that where I love to be on the
bleeding edge and the work that I do is exactly on that edge and when I think
about on a global basis the regulatory environments specific to blockchain
technology you know we look international to China and we look
international to the European Union in both of those jurisdictions and just as
examples there are coordinated efforts across regulatory agencies to build
define structures that classify these assets and the legal entities that are
engaging in those assets and I think that that the clarity from the
regulatory perspective and the coordination from a strategic viewpoint
you look towards the EU they’ve published a coordinated blockchain
strategy with a funding mechanism that sits behind it because they recognize
the pace of innovation that’s coming out of Southeast Asia with regards to some
of these investments so you know obviously with the most mature liquid
markets in the world there’s a an additional layer of of expectation and
you know controlled to guarantee investor protection and market integrity
and we have the most complex markets in the world but I think that you know as
we look forward to the next five to seven years there’s an opportunity and
and the US regulators are there we’ve had them in the room today they
recognize the opportunity to to advocate for a more progressive approach and I
applaud Georgetown and the work that that you’re doing here working with
organizations like the chamber of digital commerce to bring the academic
lens around these asset types in this technology to
to Congress and through that education campaign I think we can take a more
progressive approach in the regulatory environment and and maybe mirror some of
the progress that we’re seeing out of Southeast Asia in Europe I was just
going to add on the on the service to individual investors than the question
of robo advice I do think the US has been an early innovator and we’ll talk a
little bit more about that when we get in the panel but there is a global
imperative driven by regulatory organizations to deliver lower cost
financial services more transparent value for money or transparency greater
price effectiveness greater value for money for consumers so I think a
combination of digital and advice and the financial markets is going to be an
extremely powerful global force and so I think it’s only a matter of time between
people before we read rule full articles about whether it’s China is ahead or or
America is ahead I will do will give you one example that where I think I think
it is very much a sector-by-sector analysis so I think unequivocally the
China is ahead in the payments system at least in a non rule you know that in
urban sections of the country the American payment system is an
abomination compared to other advanced countries for
those you who try to scan things various type places across the country because
the fights between the banks and the retailers but that’s a very different
market place but that’s a potential platform that’s a different market place
today it’s segmented from the investment or asset management side but I could see
that convergence of banking and asset management giving for example China and
advantage in mobile access to low cost investment noise I would also just want
one thing from earlier is just say that you know we are in the u.s. I think the
best at capital formation without a doubt and so that’s why companies want
to come to the u.s. they want to list on our markets and with that we know today
we have the top five by market cap technology companies in the US and if
you look at the list of the top ten I think we have seven of the ten so we
are we’re coming from a position of strength and it’s ours to lose so how do
we go about making sure that we are thinking about regulatory aspects to
have the investor protections as you mentioned before and do things in the
right way we just can’t be too far behind them right and so we need to take
our lessons from other markets and make sure that we can still set the bar
really high and I hope that people understand that look when we’re doing
innovation it’s not that we’re afraid of regulation we actually you know for
Gemini we like regulation just give us clarity on it tell us how high the bar
is we can actually help I think markets in in general by setting
that new bar and and we’re more than willing to do that but we don’t want to
miss our plate you know lose our place in the u.s. because we do it really well
here I think it’s a you know well said that clarity is it’s beneficial for
everybody both the investor the entrepreneur and also ultimate users of
this but you know for our personal experiences that we’ve been building out
our G coin and the money transmission we got approval in Dubai first Switzerland
second EU third Brazil fourth and then right now we’re approved in 33 states so
you know we’re not security but you know it’s my transmission so yes it’s an
asset and in so we have a lot more States to go and this is four years of
getting regulatory approvals and so you think about the amount of money that’s
spent and we’re you know just over halfway through you know the US and so
you know that’s expensive and it takes a lot of time I’m gonna add one more thing
on that cheese needs because we have a OCC here you’re also starting to see
these derivative markets pop up in in other countries and they’re very large
and there’s you know they’re unregulated today but the amount of money that’s
going into them and the impact when there’s volatility in those markets and
how they implement impact the other digital asset markets is something that
I feel like we need to be involved so that we can help stabilize that and be
the trusted platforms I’m not talking about Gemini just in general I’m just
saying us as a country and the companies that are involved
mm-hmm well thank you so much so let me just zoom in on two cryptocurrencies so
everybody always talks about cryptocurrencies the truth is that
crypto assets come in a number of varieties so we have cryptocurrencies we
have stable coins we have utility tokens but it’s not totally clear to the
general public what they are can you just give us a very quick primer on the
basic crypto asset classes yeah I can take that first um you know so that
there’s a reason we frame our business as crypto assets and digital assets and
it’s exactly to the point that Alberto’s making here is that this is a spectrum
of digital assets where we frame crypto assets as assets that are native to
permissionless blockchains that are truly sitting on top of infrastructure
that is decentralized with no central authority and and the the types of
capabilities that are required to custody those assets and interact and
engage with those assets are fundamentally different from traditional
assets that are being tokenized quote-unquote and hosted on top of
permissioned infrastructure or hybrid watch chains so you know when you think
about stable coins you’re thinking about a digital representation of a fiat
currency on a one-to-one basis where some underlying collateral is is
basically backing that asset and and that idea of tokenization which has are
kind of driven the emergence of stable coins is is more broadly applicable
across all asset types including data so we’re not just looking at the
tokenization of the ownership interests and physical assets we’re also looking
at more broadly how do you tokenize assets across the physical and virtual
spectrum and in that space we’ve seen a ton of traction in the market around
tokenization of data and indeed it as an asset and how do you actually capture
the value associated with data and effectively distribute that value to the
data owners data producers and there was a comment coming earlier from Dan Draper
that was looking at the implications of data and how that plays out and I think
you know tokenization represents that that broad spectrum I don’t think we have enough time it can
be an access it an access point or any number of things but I think it just you
know highlight says so I’m saying is that there’s a need for you know clarity
you know and you know and a lot of our current you know regulatory void bodies
that we have in the US there it spans a wider you know set of questions than you
what they’re they’ve traditionally been in asking and so it poses you know
problems or challenges and and I’m hopeful that the u.s. can kind of
overcome in be able to delineate clearly that is a security that is a derivative
that is an access that is and and it’s it’s a kind of a fear topic still and a
lot of ways and you know we we’ve had this early on is is that a number of
banks would pull your your banking lines and say no we can’t do business with you
because you’re a blockchain company is that well let me think about this I
stand for an immutable ledger that’s clearly nobody can fake from an internal
controls perspective it’s clearly auditable and aren’t those good things
and so you know there’s you know and we need to find a way to delineate what’s
good from a financial perspective and and what’s not and you know what’s kind
of the wild wild west there’s a lot of people like Jim and I and doing the
right things in the right ways and so you know let’s find a way to embrace
those types of but you know that type of entrepreneurialism it’s just I like that
one quickly is a you know for the assets that we list on Jim lay and you know
we’re very focused on making sure that they are not considered securities and
that’s mostly because of the the regulatory framework that we’re
following as well as our focus on not just retail but also institutional
investors which we think makes healthier markets when you have both sides of that
market and so that is a reason why we will not list some of the tokenized
assets if we look we think there might be or there is not clarity regarding
that security status so it’s in a bit inhibited or
so there’s a little bit of extent to which the hype has not helped the focus
on what these things are so I’m the old guy here I remember as a kid there were
two forms of paper currency in the United States one was called the silver
certificate and one was called a Federal Reserve Note and the silver certificate
you could actually take to the silver to the Federal Reserve and exchange it for
a certain amount of silver a Federal Reserve had no note had no physical
backing now currency today in fact over 99.5% of it has no physical existence
what’s the difference between a digital asset and a dematerialized security
right India hasn’t moved big piles of securities around for about 20 years now
aren’t those really digital assets federal treasury securities in the
United States and haven’t had a physical manifestation they’re digital they’ve been
digital for 40 years or so so I think there’s really not that much that’s per
se new we just need to think more creatively about how to apply the
existing regulatory structures to these new and innovative instruments and one
thing that would be extremely helpful in the currency area is if we actually had
a central bank that would start issuing in the digital form and in Canada
thought about Canada thought about it for a while they seemed to have dropped
that China may actually be the first to yeah they’re due in the last couple
weeks why not yeah they are so I mean that the central bank issuing digital
currency space is heating up rapidly you see the digital RMB coming to market in
the next 6 to 12 months pretty much guaranteed there’s questions about
whether or not that will be collateralized by gold or some other
type of asset but the e Crona is about to be issued as well and you know we’re
focusing acutely on that space because central bank issued digital currency
offers a transformative opportunity for the global economy
and it has massive implications to the way that our global trade system works
and I would argue and I think there’s a lot of people that are crypto native
that that CBD sees central bank issue digital currency will come to play much
sooner than folks think you know the u.s. in that space specifically there
was traction and discussion around what a Fed coin might look like several years
back that traction failed as well similar to Canada but as you start to
see countries around the world moving aggressively in that way I would I would
argue that the pace is actually going to accelerate and there’s there’s focus
there was a paper that was put out by to IMF researchers over the last several
weeks that was actually saying the u.s. from the CBDC perspective is so far
behind other countries in the world that there may be an inclination or
opportunity to look at how the US could adopt privatized
stable coins they’re not going to be the reserve currency of the world if you
don’t go in that direction
Fully agree Fully agree in every great plan so let me ask John a
more provocative question and then I want to see the reaction from the other
so you clear an incredible amount of contracts every day at OCC so do you
think that blockchain technologies will be a threat in the near future or in the
far future for OCC like will they be able to be quick enough I think that for
so so what is OCC do OCC centralizes the credit intermediation process so if you
think about the traditional market where you have two counterparties that don’t
know each other in order for them to transact they have to alter their price
for the perception of the other counterparties creditworthiness the
central counterparty has one set of creditworthiness that’s known to all of
the market participants and so the central limit order book can actually
have a single price for a particular type of asset and it doesn’t have to get
adjusted for the different creditworthiness a different perception
of creditworthiness some of the other parties so that centralization is based
on having a trusted network one of the most important pieces of our
several lines of defense is the admission criteria to become a clearing
member and the financial reporting that has to go on and our surveillance of
that reporting that has to go on I don’t think that gets disintermediated by a
distributed ledger technology I do think that all of the post execution or many
of the post execution pieces of the process can be a lot more efficient
through a distributed ledger environment and that’s why we are spending quite a
bit of time figuring out we have a small nascent probably 15% of the market for
intermediating securities lending trades in the United States that is a
bilaterally negotiated business and there’s a real opportunity for the
advantage of of distributed ledger technology but at the end of the day for
particularly systemically important financial market utilities the name of
our game is not trying to predict who’s going to be winners and losers because
if we were good enough to do that we wouldn’t be working in this part of the
business we need to be able to enable the benefits of a central counterparty
which not every single market should have central counterparty intermediation
that I think is one of the pipes around dodd-frank that they got wrong we need
to enable the benefits where they are going to arise and and that’s a fairly
sharp technology investment kind of a challenge thank you
there’s there’s I’ll build on that there’s there’s two pieces there one is touching on that bilateral
ability and that’s you know I think we have to delineate to some extent
understanding watching as an infrastructure technology from smart
contracts as the ability to process and decentralized capacity computing logic
right so that bilateral communication can be facilitated through
through smart contracts and this whole emergence of decentralized finance
but the post trade settlement space to your point has been a huge area of focus
I mean there’s been a ton of work ASX took a leadership role several years ago
in deploying this DTCC is pretty far down the path as well so I think you’re
gonna see the productionalization of those post trade settlement systems in
the next six to twelve months in a meaningful way okay so let me now focus
a little bit more on robo-advising just for a second for a question for you
Steve so when I interact with individuals on the street they think
that robo-advising is this very very sophisticated technology where the
individual interacts with a machine that understands exactly what the Preferences
of the person are what the desires are and then implements a automated
portfolio location that is really evolving as time goes by and it’s
catered to the individual is it is it really reality are we there yet or do
you think this is something that we’re still far away well a lot of robo-advising is is pretty basic cause they the part that’s perhaps more speculative
is that part you described eliciting preferences in a sophisticated way
because I don’t think that problem has been solved either in the real world of
financial services or in the empirical finance literature how you actually
identify people’s true preferences but way back when so robo-advising probably
be in the mid 90s with a company many of you may know this name Financial
Engines and Bill Sharpe its founder which really for the first time allowed you in
a 401k plan literally to hire someone through an algorithm and there were
hints of that you know they made the way they inferred your risk tolerance say if
you had signed up for them in 1997 when we first contracted for them is they
they looked at your existing portfolio behavior to draw some inferences because
they didn’t have any data they couldn’t go to call you up and and because they
were robo and then probably about 10 years later they’re a group of
technology innovators who got kind of annoyed with their human resources
departments because they would get bonuses and if you went to the
typical Silicon Valley human resources department said I need help managing my
bonus money which is always a problem nice to have right the human resource
department say well there’s this firm down the street called Charles Schwab or
this firm down the street called Morgan Stanley and I’m picking two of a
particular firm that I know and they would just send them off and technology
people said well I don’t I don’t want to get my car and drive somewhere I want to
be at a desktop so hence betterment wealthfront etc but I think all of them
have share in common some that what they have done is what’s what’s happening in
general and actually I think Ananth referred to this in his discussion
earlier about model portfolios is this automation of the investment process the
replacement of it used to be I would sit with you as my adviser and you’d
magically pick stocks and bonds and mutual funds and now it’s all been sort
of algorithmically determined in a more disciplined way there’s lots of
variation there’s lots of customization but it’s really it’s the it’s the it’s
really the investment process being made made more algorithmic so I think that
that part is actually true for example in the vanguard system there are five
glide paths there they they’re all these flags you can shift based on personal
preferences but it’s all driven by an algorithm and the personal advisor is
explaining the investment process to you it’s a hybrid system at Vanguard with a
personal advisor as well as algorithm they’re not creating the algorithm by
the seat of their pants okay so before opening the flow to a question from the
audience I have one question for Brent so on top of being the the founder and
chairman of Emergent and you being private equity for a very long time and so how
does the valuation of FinTech firms is differ compared to traditional companies
if there is any difference yeah well I guess thanks to Georgetown in there and
here I can you know start with probably a very fundamental question everything
is cash flow based and it doesn’t matter of you’re a Venture or maybe even Angel or
if you’re all the way through to maybe something like infrastructure and you
know I think the the real difference as you’re going through that is is that you
know every model is going to be wrong and the
to what degree is it gonna be wrong and maybe it’s better maybe it’s worse and
if your and more the infrastructure bucket you’re expecting a narrower range
if you’re in the FinTtech side you’re expecting a wider in a range of course
you adjust that with a discount rate you use and you should be more on parallel
but you know look the Venture investor you know often is run in a portfolio
where they’re expecting 30 percent of their stocks or their your picks to do
exceptionally well and that’s gonna carry a portfolio through returns and
you might have several you know write offs that you know in there on the flip
side a kind of private equity or infrastructure investor your
underwriting for zero losses you know you got to get your capital back and
every deal and you know otherwise you’re gonna you know drift your portfolio
returns down and so you know you kind of bring it back though it’s as cash flows
in and say you know okay you know the FinTech investor is often a little bit
more willing to give you the benefit of the doubt on some of your hockey stick
assumptions whereas the other guys are going to knock it down fair bit more so
But both get it wrong we firstly thanks so much for organizing today’s event my
name is Leo I’m a evening program MBA student at Georgetown and my day job is a data engineer in American institution for research so
currently I’m in like the education industry however these questions may
send a photo the future students who want to switch industries like I want to
dedicate it to the family industry the mutual fund like Vanguard or any hedge
fund as a contest strategy analyst in the future however during an interview
with a previous expert before he said like the MBA student may not have the
advantage the outstanding advantage compared to the PhD student who is in as
specific machine learning or language processing like the researcher rear so
today I want you to ask like that as a MBA and how should I face this
drama and used my next two years to give me a better chance to step
into this industry as you guys thank you well I said there are few of us talking
last night and just about how intellectual curiosity just is
incredibly important and that’s you know something that I know Georgetown in
embodies and a lot of the not just the program by the individual classes and
you know we’re talking about you know certain aspects that are new and you
talk about you know smart contracts it’s a solidity programming language not many
people know it’s certainly not taught in university anywhere and so you know the
best thing to do is is to get out to learn do internships ask questions
I just even dive in and you know it’s important the tools you learn in school
but it’s also important what you learn outside of school as well yeah I would
follow up on that I think that’s exactly right I think what you get out of your
formal education and before I went to business school University of Chicago I
was a political scientist it’s not what you learn in school it’s that you learn
how to learn and that’s something that you can have a passion about as I do and
I think many of us do and that’s a lifelong experience and if you think
it’s well it’s only in school no you need to understand certain principles
about how things are expected to work you need to be able to look at cases
that don’t correspond to that and and think about rigorously decision making
processes and it really doesn’t matter what the specific discipline is or how
well you understand the math it’s really as Stacey said surrounding yourself by
people who are better than you you know most of the human race is better math than I am that is necessarily limiting what I’ve been able to do we do a lot of hiring in
these sort of analytical and research fields and what’s interesting to me is
with the growing use of let’s say machine learning and artificial
intelligence which by the way is not really some magical process it’s just I
got a degree in computer science as an undergraduate so I’m just like yawning when people come and talk to me about algorithmic reasoning because
it’s what I did 30 years ago but four years ago but yeah I do think what we
see is there’s really heterogeneity of skills so for example at Vanguard we’re
hiring people who got PhDs in sociology and really didn’t know what to do and
spent 12 weeks at a data science boot camp it’s all you really need to do
programming in our and build simple predictive random forest models or
something like that so we’re hiring that kind of person
we’re hiring PhDs we’re hiring quantitatively inclined MBAs for those
types of roles but again I I do think everything that everyone said there is
the technical agenda which is a learn R or Python so you can get a job but then
there’s a few machine learning techniques so you can sell yourself from
a technical skills perspective but all the other things I think everyone talked
about the human side there’s a huge emphasis obviously on emotional
intelligence and teamwork and engagement with other human beings and I think in
that we look for that by the way with PhD candidates in finance as well as
with MBAs and undergraduates so you really have to balance both of those I
think six the one of the problems we face is
taking these new products and putting them into old regulatory buckets what
changes should we be making in the US regulatory system to make use of the
promise of many of these FinTech technologies so I’ll start on that you
know it seems to me that by its nature and the nature of our constitutional
system in the United States regulatory change and particularly regulatory
change that requires legislation is a very slow process so we think in the
modern day we’re frustrated if you know the history of the exchange act was
passed by Congress in 1934 there were virtually zero significant changes to
that until 1975 so forty years nothing changed on the regulatory front with
respect to one of the most important market structure pieces of legislation
in the United States one of the issues we face today is that our regulatory
agencies simply aren’t adequately funded so if they had more people they have
really bright people at the SEC the CFTC the various Federal Reserve and other
banking regulators but they don’t have enough of those people and consequently
they have to prioritize and they can’t move things through as fast as they
would like to so one of the short-term things that could be done is better
funding for the regulatory agencies that we have and that would give them the
opportunity to implement some of the ideas that the two commissioners in the
previous panel we’re talking about unfunded or underfunded market
regulators are not a contribution and and that’s something that I think
Congress ought to pay attention to and I think it is
a it’s a politically neutral topic both parties ought to be in favor of until
things change in the direction they want to change at least fund the structures
that we have so that we can all find ways to make the changes through the
process that exists well I mean there’s a can of worms between kind of national
and state laws across a lot of different parts of our financial systems but even
if you don’t want to talk all that how about using something simple my kids are
now in University they had a common app and they’re able to apply to a bunch
of colleges hey can we have a common app that we can apply across all the states
you know instead of having to do it 50 something times I think there’s some
practical you know ways it even if you don’t want to tackle the regulatory
because I agree it’s a very big topic you know I invest in a different
emerging market and one of the fine things that I find is a lot of countries
have investment offices and they will actually help foreign investors kind of
work through the various regulatory landscapes and you know why not have an
investment office both for nationals as well as internationals
you know here in the u.s. so I’m sure in and maybe that’s probably funding in a
kind of you know approach but there’s a lot of practical things that could be
done without even having to change the regulations the Uniform Commercial Code
was many years ago an example of that it’s not as uniform as it used to be but
that’s what we need it’s a good one yeah can I give you one practical example
that relates to everyone here is sort of individual investors or savers which is
going back to the history of the Securities and Exchange Act right but
the idea was to create a document known as a prospectus which would be reviewed
by the financial advisor attorney or accountant for the client client in this
complex sort of information and disclosure process that mindset still
dominates today yet we know that if I put a mutual fund or ETF on the homepage
of the Vanguard Group I will get hundreds of thousands to buy that
security even though it had no intention of buying it when they arrived at our
website just merely by making it or salient in the consumer and the
digital customer experience you know the orientation of the pages orientation
of investment information this is all basic behavioral economics for those of
you studied that but those kinds of things the regulators have not come to
grips with and so as long as there are we meet this standard requirements at
FINRA and the SEC for say returns disclosure and information descriptions
and they’re accurate that’s fine but these broader questions of how the
customer experience shapes decision making is really beyond today the reach
of actually have to say most regulators around the world and by the way they’ve
begun to think about it because they’re understaffed and they’re under resource
they they’re not really sure how to approach the problem you read every word
in that Apple document every time you it’s not just the regulatory
environments the legal environment as well that’s right exactly find it I also
find it really interesting to see some of these newer FinTech companies who do
have you know regulatory maybe be statewide or or whether it’s otherwise
how they’re starting to approach their end customer and instead of giving them
the list of paperwork they’re walking them through pages on the website they
have pictures and show them and have a little funny you know sayings and things
that get them really interested and helping them understand what they’re
what they’re going through right there and how that investment might work the
risks associated with them in a funny way that really grabs the investor I
think it actually helps them yeah better understand what what they’re investing
in okay well thank you very much I think we’re out of time with let me thank the
panelists Alright everybody so this concludes our
program today and so I want to thank you all for coming this was just a wonderful
example of I think what Reena wanted to build ten years ago when she started the
center which was a place to create convene create great dialogue and get
surface issues get the conversation engage the policymakers the regulators
and industry together so I think it’s been great so you’ve been absolutely
great audience we’re not done yet those guys still had some questions answer
we’re having a happy hour upstairs a reception so please join and other
speakers are still here too please join us upstairs this is you know the the
2019 event we’ll be contacting you soon about the 2020 event and we have the
blockchain one already scheduled in March we’ll do a big financial markets
quality again next fall probably early November
we’ll get that data out to you soon but and as always if you have any questions
comments or thoughts please reach out to myself Reena Anna we’d love to get your
feedback etc but otherwise thank you very very much and we look forward to
seeing you next year

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