GMM Day 2: Regulation, Innovation and the Economy

Author: NICSA

A provoking pair of speakers kept the energy high during day two of NICSA’s General Membership Meeting with a keynote on facilitating rapid technological change followed by an update on the U.S. economy.

Paul Schott Stevens, President and CEO of the Investment Company Institute (ICI), presented the morning keynote, which focused on advancing the relationship between regulators and technology.

“You don’t need or want me to tell you how you can apply the latest developments to your operations or where these trends are taking the fund industry—on those issues, my crystal ball is cloudy at best,” Stevens said. “But as a lawyer, and as someone who has observed Washington for most of my adult life, I can tell you that the impact of emerging technologies will be profoundly affected by regulators and by their approach.”

Historically, when technology transforms finance, regulation has not been far behind—in fact, the two have always been fundamentally linked, Stevens said.

“The aims and purposes of regulation are going to be the same whether the customer is served in person, via the U.S. postal services or over an Apple Watch,” he said. “Fintech isn’t going to upend the regulatory structure.”

Regulators should seek to facilitate new means of serving consumers and providers of financial services. To achieve that goal, Stevens offered three guiding principles:

1) Protecting investors and markets is paramount
2) Innovation thrives best when government sets out bold standards
3) Regulation should remain technology-neutral

Stevens outlined how the ICI is urging the SEC to undertake an initiative to “remove technology barriers and unleash innovations enabling shareholders to find what they need to know, when they need to know it, with layered disclosure, easy navigation and links to other relevant sources.”

To that end, Stevens said regulators should focus on “fostering innovation without locking in one technology or one provider as the government-blessed solution.”

Burt White, Chief Investment Officer of LPL Financial Services, followed the keynote with an engaging and lively update on the economy, boldly asserting that the U.S. has not lived up to its GDP potential and has failed to improve the lives of average Americans.

Historically, he said, the worse the recession, the better the recovery. “What you would expect is the Great Recession—which is the worst downturn we’ve seen since the Great Depression—would be followed by the best recovery that we’ve seen.”

But White said that simply didn’t occur. On the heels of the 2008 recession, the country should have seen a growth rate of 5 percent. Instead, economic growth averaged around 2 percent in the first four years of recovery.

“We’re now eight years into it and we still haven’t gotten to our potential,” White said, stating that the economy is growing at a third of what it should.

White said the U.S. is missing the mark due for two reasons:

First, “the Fed needs to get out of the way,” he said, pointing to a period of near-zero interest rates and the $4 trillion it put into the market to stimulate the economy.

White said “what they missed was that the Boomers were scared to death and they saved and hoarded every dollar they could, because they knew at one point in time they would have to retire. The Fed wanted spending, and they got savings.”

Second, “coming out of a recession we usually get a surge in productivity,” he said, defining the term as “how effectively an entity utilizes its resources to grow its profits.”

This time around, however, the U.S. faces lower-than-ever productivity rates. “It’s hard to believe given all the innovation we’ve had,” White said. To close the gap in GDP potential, White said confidence matters most.

“We’re still in a recession,” he said. “It’s not an economic recession, but it’s a confidence recession.”


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