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Types of Fintech in the Securities Industry

In this article the TTSEC will be discussing the types of Fintech in the Securities Industry.

Most Fintech product/service providers interact with their clients through platforms that are accessible via internet browsers and mobile applications. These platforms are designed and operated based on emerging innovations/technologies. The leading technologies, supporting the provision of Fintech services, are distributed ledger technologies (“DTL”), big data analytics, cloud-computing, machine learning and application programme interfaces (“APIs”). While these technologies are widely used, they remain relatively unknown to the general public.

  • DLT is an information technology model that stores information in registries owned by every computer linked to a specific network, on which they are located. Such data is shared, replicated, validated and synchronized across each computer on the network. DLTs are decentralized, and this differentiates this technology from traditional databases and information storage procedures. Therefore, no central party can directly control or manipulate the network (Association De Supervisores Bancarios De Las Americas (ASBA) 2017, pg. 10). Blockchain is a popular DLT in the financial system and is used by cryptocurrencies, most notably Bitcoin
  • Big data analytics includes data analysis activities that collate information on purchasing histories, interactions within social networks and web-page visits. The analysis is normally done on large networks or cloud computing services. The data being analysed is either structured or unstructured. Big data analytics can be used by financial institutions to analyse purchasing habits, or by regulators to analyse thousands of transactions when monitoring for ML activities.
  • Cloud computing is an information technology model that consists of the provision and use of on-demand computing configurable resources (e.g., servers, storage, applications, and more.) via an internet network, as opposed to a physical connection to a server. Cloud computing services enable users to store information, processes, and data in servers that may be accessed through any computer with internet connection (Association De Supervisores Bancarios De Las Americas (ASBA) 2017, pg. 7).
  • Machine learning refers to infrastructure with the capacity to learn using data-analysis algorithms (Association De Supervisores Bancarios De Las Americas (ASBA) 2017). In the securities industry, Fintech providers use machine-learning methods to create robo-advisors[1] to provide investment advice to clients.
  • Application Programme Interface (APIs) are a set of routines, protocols, and computing resources which aim to create efficient methods of communication that allows the interaction with other systems (Association De Supervisores Bancarios De Las Americas (ASBA) 2017, pg. 6). APIs result in easy-use graphical interface for clients thus increasing convenience.

These technologies have been used to create a number of products and services within the securities industry. The following are some Fintech products/services that may become more prominent in Trinidad and Tobago:

  1. Alternative Financing Platforms – these are aimed at bringing together firms and individuals, looking for capital, and others that have money to lend, invest or donate. This includes Peer to Peer (“P2P”) lending, which is a business model that allows investors, alone or with others, to provide financing to borrowers. The novelty of this business model is that financing may be obtained from many different lenders/ investors ranging from individuals to institutional investors (International Organization of Securities Commissions 2017, pg. 11).
  2. Retail Trading and Investment Platforms – online investment and trading platforms have evolved significantly, pressuring traditional brokerage houses and asset management firms to provide customers with access to products and services across multiple distribution channels. This has also led to an increasingly cost-competitive environment, prompting the use of technology to automate processes and increase product breadth and depth (International Organization of Securities Commissions 2017, pg. 23).
  3. Automated Advice Tools – comparison Websites typically incorporate a “cost-per-click” model which may amount to giving investment advice on a fee basis.  Financial aggregator platforms allow individuals to link accounts across multiple financial institutions and may also mine the associated data with a view to providing investment advice based on the mined data.  The social trading and investing and social media sentiment platforms typically offer a social approach to trading and investing where individuals invest, and trade based on the advice of a leader who may or may not be a licensed financial professional.

The Commission aims to adopt regulatory and supervisory initiatives to support innovation and improve regulatory efficiency. These initiatives will be supported by various regulatory tools or infrastructures which include an innovation hub and a regulatory sandbox.

These provide a dedicated point of contact for firms to raise enquiries with competent authorities on Fintech-related issues and to seek non-binding guidance on the conformity of innovative financial products, financial services or business models with licensing or registration requirements and regulatory and supervisory expectations (ESMA 2018, pg. 5).   
These provide a scheme to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial services or business models (ESMA 2018, pg. 5).   

This article concludes the TTSECs Fintech series of articles. For more information on the securities industry visit us at www.ttsec.org.tt or www.investucatett.com or follow us on Facebook; Twitter; Instagram and YouTube.

[1] Robo-advisers provide largely automated portfolio management advice, strategies and services for investors (International Organization of Securities Commissions 2017, pg. 25).