Commissioner Kara Stein, the highest-ranking official at the US Securities and Exchange Commission (SEC) has issued a new warning about the hype surrounding blockchain technology and distributed ledgers.
As part of a Harvard Law School event held yesterday, Stein broadly discussed new innovations affecting US capital markets, naming the blockchain as a specific emerging technology that could impact the sector.
In her remarks, Stein, who was appointed to the position by President Barack Obama in 2013, commented on the increasing attention the technology has received of late. Further, she noted the blockchain’s relationship to bitcoin and listed a series of use cases for which the tech is currently being explored, naming areas including clearing and settlement, payment processing and loan transactions.
While acknowledging that such applications could increase quality and trust in the financial system, Stein stopped short of endorsing the technology, telling the audience:
“While I am not advocating for the adoption or effectiveness of blockchain technology, it appears to offer potential. One can imagine a world in which securities lending, repo and margin financing are all traceable through blockchain’s transparent and open approach to tracking transactions.”
Stein went on to theorize that public ledgers could one day yield benefits for government regulators, who would be able to better monitor “systemic risk” in financial markets.
However, Stein cautioned that these ideas are “still in their infancy”, adding that she believes the technology will need to deliver on its hype through a “constant evaluation” by regulators, academics and capital markets participants.
“Can [the blockchain] be used to enhance the quality of our markets and investor protection? Or, is there a way it could be used to monopolize markets or undermine competition? How should this technology be best deployed? Should it be run via a public-private partnership, somewhat like the Internet?” Stein asked.
She added that she believes US regulators should be watching developments in the technology closely, adding:
“If the market begins to move toward blockchain technology, regulators need to be in a position to lead, harnessing its benefits and responding quickly to potential weaknesses.”
The remarks are among the first from the US government agency, which oversees federal securities laws, on the subject of bitcoin or blockchain technology, and come amid an increase in startups seeking to appeal to, or restructure their services for, enterprise financial institutions.
To date, the SEC has primarily been active in the industry through infrequent enforcement actions taken against defunct startups including GAW Miners and Sand Hill Exchange, among others.
Kara Stein image via the SEC