Idaho regulator seeks wide range of input on fintech oversight

John Yaros wants to hear from a wide range of people with an interest in financial technology – and wants them to listen to each other – as he develops oversight policies.

Yaros, chief of the Securities Bureau of the Idaho Department of Finance, said that too often policy discussions can become echo chambers in which regulators, industry participants, academics and others talk among themselves.

“All stakeholders like to stay in their little boxes,” Yaros said. “We’re trying to break them out of those boxes.”

He’s attempting to do so through the Financial Innovation Lab and the Emerging Technology Advisory Committee. Established earlier this year, the initiative brings together financial and technology experts who will help Idaho regulators better understand emerging technologies in the financial sector.

The committee initially will focus on cybersecurity and cybercrime, artificial intelligence and machine learning and workforce development. The goal for the workforce priority is to create a financial technology, innovation and security professional certification.

The Financial Innovation Lab will hold its first public conference on Feb. 19 in Boise, Idaho. The topic is “protecting consumers in the digital age,” and participants will include Securities and Exchange Commission and other federal regulators, lawmakers, financial and technology company representatives, scholars, lawyers and law enforcement officials.

A major challenge in regulating financial technology is its rapid growth. That’s why it’s important to take a multidisciplinary approach and gather a number of perspectives – from venture capitalists to entrepreneurs to law enforcement officials, Yaros said.

“Unless you [look at] it from all angles, you end up not getting the full picture,” said Yaros, who spent eight years in Washington on Capitol Hill and in the Treasury Department before coming to Idaho earlier this year. Previously, he worked in operations at Morgan Stanley.

The lab will encourage “blue sky” thinking where broad questions are asked in order to develop principles, frameworks and standards to guide the development of regulations. The key questions to answer are the four “Ws,” Yaros said: What’s happening? Why is it happening? What does it mean if it continues? What can we do about it?

Yaros said he's shooting for “good, principles-based oversight. It’s not looking to stifle innovation. It’s trying to evolve with it, knowing that technology will surprise us.”

The initiative doesn’t intend to promote light-touch regulation so much as right-touch regulation, said Edward Vasko, committee chair and director of the Institute for Pervasive Cyberecurity at Boise State University.

“It’s bringing a pragmatic perspective around regulations so that it’s not overly burdensome but not leaving zero regulation out there,” he said.

The lab will help the private and public sectors work together to achieve the right balance.

“It’s a place where collaboration can occur,” Vasko said.

The SEC has finalized a cybersecurity reporting rule for public companies and proposed cyberattack disclosure rules for investment advisors and brokers. The agency also has proposed a rule to address potential advisor and broker conflicts of interest when using AI and predictive data analytics. The measure has sparked a firestorm of opposition and a chorus of industry calls to withdraw the proposal.

Yaros declined to comment on the SEC’s AI proposal. But he said principles-based regulation is best for financial technology because prescriptive rules can easily be overtaken by technological advances.

“We will build out our own principles-based models that we believe will be best suited to evolve with emerging financial technology innovations,” he said.