An irreverent Wall Street Blog
The FINRA Crypto Hub-bub and William of Ockham
August 7, 2023
The other day, while I was perusing FINRA's website, I came upon this: "An Inside Look into FINRA’s Crypto Asset Work" (FINRA News Blog / August 3, 2023)
https://www.finra.org/media-center/blog/inside-look-finras-crypto-asset-work
Now, mind you, I'm always eager to get an inside look into FINRA's purported work. Given the ongoing debate about how to best regulate crypto, my interest was piqued. This is what the opening paragraph of the inside look into FINRA's efforts promises:
https://www.finra.org/media-center/blog/inside-look-finras-crypto-asset-work
Now, mind you, I'm always eager to get an inside look into FINRA's purported work. Given the ongoing debate about how to best regulate crypto, my interest was piqued. This is what the opening paragraph of the inside look into FINRA's efforts promises:
FINRA’s core mission is to protect investors and promote market integrity. This mission is at the heart of everything we do. An important example of this mission in action is our work to address the unique regulatory challenges presented by the activities of our member firms that relate to crypto assets—also known as digital assets—which are assets issued or transferred using distributed ledger or blockchain technology.
Protect investors. Promote market integrity. The unique regulatory challenges of crypto assets. Check, check, and check! I'm onboard with all of that.
A Hobbled Regulatory Effort
In "SEC Chief Accountant Lays A Cobblestone On The Road To Hell Paved With Good Intentions" (BrokeAndBroker.com Blog / July 28, 2023), https://www.brokeandbroker.com/7130/crypto-sec-munter/, I recently criticized the federal regulatory community's failure to promulgate an effective regulatory regimen for crypto:
I am no fan of crypto and fear that there is far too much fraud in the area. No -- that doesn't mean that crypto in and of itself is a scam, nor does it mean that the digital concept is invalid. What it does mean is that too many folks who have no idea what crypto is and should not be investing in crypto are, in fact, putting their life savings into this product. It means that intelligent regulation of the sector is long overdue, but, sadly, that effort is hobbled by turf wars between the CFTC and SEC, and further addled by too much posturing and musing. The time for action is long overdue.
FINRA Hub-bub
As such, I welcomed FINRA's promised "inside look" into that self-regulatory-organization's crypto work; that is, until my eyes came to this portion of FINRA's August 3rd News Blog:
Crypto Hub
That is why FINRA started a Crypto Hub, also known as the Hub.
FINRA established the Hub in October 2022 as an enterprise-wide effort to ensure we are prepared to fulfill our regulatory mission regarding the crypto asset-related activities of member firms and associated persons. The Hub includes representatives from nearly every FINRA department working as a nerve center to manage FINRA’s regulatory work related to crypto assets. This includes:
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- conducting risk-based examinations and investigations of crypto asset activities being conducted by our member firms and associated persons,
- building for the future and enhancing our capabilities in this area, and
- engaging in blockchain innovation to support and enhance FINRA’s regulatory capabilities across all product types, including crypto assets.
Prior to the Hub being established, FINRA also established the Crypto Asset Investigations (CAI) team and Blockchain Lab, which are specialized units staffed with crypto asset subject matter experts. CAI conducts complex investigations related to crypto asset fraud and collaborates with FINRA’s exam program to conduct risk-based examinations of firms’ compliance with FINRA rules and federal securities laws and regulations related to crypto assets. The Blockchain Lab serves as a central point within FINRA for the development of blockchain-related regulatory initiatives and helps build or source technology solutions to facilitate oversight of blockchain-related activities. Additionally, FINRA recently established a Crypto Asset Surveillance Team, which works in collaboration with the Hub and supports FINRA’s ability to conduct surveillance of the crypto asset markets.
Oh for godsakes, seriously? Really?? What the hell is a regulatory Hub? After some four decades dealing with Wall Street regulations and regulators, I don't think that I've ever used a sentence in which I had referred to any regulatory effort as a "Hub." Of course, the fact that no one in our industry would think of using such a term is no impediment for FINRA when it comes to making the commonplace seem esoteric and oh-so edgy.
Oh-so Enterprising
Turns out that in October 2022, FINRA established "the Hub" as an enterprise-wide effort. Not sure that I would ever think of a self-regulatory-organization as an "enterprise;" but, large organizations are enamored with taking the commonplace and slapping it with a fanciful new name so that the mundane seems more impressive.
Oddly, FINRA asserts that the Hub is "an enterprise-wide effort" but this "enterprise-wide effort" does not comprise all of the regulator's enterprise and enterprisers. No . . . this enterprise-wide effort cover "nearly every FINRA department." How sad it must be for those excluded FINRA departments to find that did not make cut when it came to inclusion into the enterprise-wide-effort of the Hub. Hopefully, there is a participation certificate as a consolation prize for those poor regulatory staffers who didn't make the cut into the "nearly every" effort. Talk about being relegated to the desolate spaces of the organization's in-house Siberia!
The FINRA Big Bang Genesis
Before the self-regulatory Big Bang that created the Crypto Hub, FINRA was a somewhat dark and empty space. FINRA's dry prose does its Genesis-story no service. So, let me conjure up a more apt framing of the birth of the FINRA Hub:
In the beginning FINRA created the self-regulatory heaven and the earth.
And the earth was without form, and void; and darkness was upon the face of the deep. And the Spirit of FINRA moved upon the face of the waters.
And FINRA said, Let there be light: and there was light.
And FINRA saw the light, that it was good: and FINRA divided the light from the darkness.
And FINRA called the light the Crypto Asset Investigations ("CAI") team and the darkness FINRA called the Blockchain Lab.
And the earth was without form, and void; and darkness was upon the face of the deep. And the Spirit of FINRA moved upon the face of the waters.
And FINRA said, Let there be light: and there was light.
And FINRA saw the light, that it was good: and FINRA divided the light from the darkness.
And FINRA called the light the Crypto Asset Investigations ("CAI") team and the darkness FINRA called the Blockchain Lab.
And the evening and the morning were the first day at FINRA.
In the beginning, CAI conducts complex crypto-related investigations; and the Blockchain lab is a "central point" within FINRA -- not an off-center point or a moving point or even one of those bouncy points but, notably, a central point in the FINRA firmament.
Not content with mere light and darkness -- mere CAI and Blockchain Lab -- FINRA added a Crypto Asset Surveillance Team. This Team is not an independent star unto itself in the heavens but more like a moon that orbits the Hub planet with which it "works in collaboration with." I guess this Team should be thankful for small things like not being named a planet like Pluto and after many years finding itself downgraded from a planet to dwarf planet.
The Special Summit
After having created light (CAI) and darkness (the Blockchain Lab) and a moon (Crypto Asset Surveillance team), FINRA created the Crypto Hub. Fully enveloped by its digital-asset-regulatory-religious-fervor, FINRA informs us in its inside-look August 3rd News Blog that it is now
engaged in a variety of initiatives designed to build for the future and enhance our capabilities. Key aspects of this work are our efforts to engage with other state, federal, and international regulators and agencies to discuss crypto asset regulatory efforts and developments, as well as our efforts to engage with member firms and other industry participants to better understand current crypto asset activities and issues. A special summit attended by crypto asset subject matter experts from FINRA and the National Futures Association is one example of this work.
And as FINRA stands atop this digital special summit, one can only imagine the many stone tablets and commandments that were presented to FINRA at this Mt. Sinai.
Why do I poke fun at FINRA's arch prose and bureaucratic silliness? Because FINRA has so generously presented me with the opportunity, and I have grown tired of this idiocy. This is not serious regulation. This is the insincerity of the "marketing" of the appearance of regulation. It is the pretense that something new is afoot when, in reality, we are still putting old wine into old wineskins -- it's not even the juice of a new vintage.
in closing, I would commend to FINRA's consideration the phrase:
Non sunt multiplicanda entia sine necessitate
That phrase is attributed to William of Ockham and is often cited as the foundational principle underlying Occam's Razor. It is time for FINRA to strop a razor and cut out its penchant for creating endless hubs, teams, labs, nerve centers, initiatives, panels, and the like. There is much serious work to be done by the self-regulatory-organization. Do the damn job!
T
The Financial Professionals Coalition, Ltd. is pleased to announce that the
“Securities Industry Commentator” is now published on its website daily at:
https://www.finprocoalition.com/#fpcsic.
“Securities Industry Commentator” is now published on its website daily at:
https://www.finprocoalition.com/#fpcsic.