We all love financial regulation, right? It provides brain cells wonderful exercise to read the letter of the law from our beloved elected governments and to convert that logical law into the artform that regulators manage to interpret it as. Who could have
guessed that it would be possible to reiterate such concise, carefully worded legislation into a beautiful pastiche of rules, interpretations, no-action letters and policy advice in the form of presentations at conferences held at expensive resorts. And so,
when it comes to the SEC and technology of the Internet age we get to observe a master at work. Like modern art, you're never quite sure if you are looking at an eye or an orifice.
Not another "too much regulation" rant...
So, if you'll forgive my crude translation of the way these things work, please consider how somebody might view the SEC as a modern master of surrealism, constantly touching up a painting of an elephant where its hard to tell trunk from tail. On the one
hand, the US is lucky to have a securities regulator that is seriously considering the impacts of technology on the markets in the form high frequency trading. And on the other hand, the much more mundane mechanism of secure online portals 'offering' private
securities to wealthy investors (let alone P2P lending or
crowdfunding) is left to become a wild-west experience. Consider 73 Picasso lookalikes pointing lawsuit guns at the feet of any geek that might want modernize how to connect wealthy investors with companies, managers and sponsors who could use their
capital. (Is it a real gun? Better dance wild-west comedy movie style anyway!).
Now we all know that regulations are eventually defined by pushing boundaries through litigation and lobbyists. It could be argued such an approach ensures the rules governing our financial world can adapt. It could also be argued that innovation, and the
threat of the mighty geek, can only be tamed by such an approach.
Geeks, also known as software developers, have never really been much good at reading financial regulation. They just don't realize that normal logic does not apply. There is an art to this. Its called your lawyer, and he or she can help you distinguish
one end of the surreal regulatory landscape from the other.
Great, got that email says the geek. Now, he says, I can do what I was originally planning.
Stop right now!
It is essential to heed the warnings from legal counsel that the boundaries a geek is pushing could become a modern composition of broken beer bottles and razor wire at a moment's notice. That moment is probably when some poor unsuspecting guy with rich
connections loses a little money to an investment on your portal. Money lost in investments? But this is a website, and everything on the web is true, so you should have wrapped me, the investor, in bubble wrap and protected my money from any chance of ever
seeing a speculative return. The fact that me, the 'wealthy' investor, lied blatantly on my online application form that I knew what I was doing and had money to burn? Well that application wasn't made of paper and signed with a quill after meeting the manager
3000 miles away face to face. So the current SEC stance is that me the investor, well I "might not" be responsible for my own actions, despite the agreement I enforceably e-signed. "Sue 'em", I say.
The point of this absurd story?
In case an over-ambitious geek stumbles across this post and considers enabling a technology revolution in financial services. Take the following advice:
Write a business plan. Take the cost of developing the cool software, portal (or whatever) that touches securities law in some way. Then multiply the cost by four and set that aside for a lawyer skilled in such securities law. If your budget has just exploded
beyond the little fund you were hoping to draw on between real jobs, consider writing an iPhone chat app for teens instead.
And for the rest of the world, the non-geeks?
When everyday 'users' curse online financial services that are not user-friendly, remember that most of any development budget goes into interpretation of the contemporary regulatory art by lawyers (and in the US multiply that by 50, or at least all the
blue-sky states you might want to have customers in). Add on a chunk for constant changes to adapt to the threat of a potential ulcer-inducing, "declare bankruptcy now", class-action lawsuit. And maybe we can all kid ourselves that we're not looking at an
app that looks like rectum, but a slick interpretation of some wickedly mind-bending modern art regulation.