U.S. capital markets have continued to innovate as technology has allowed for profound evolutions in market infrastructure, changing at times the very nature of American financial markets.

At the peak of the pandemic, more than 90% of the financial services industry worked remotely, accelerating digital adoption through intensified focus and transition on priorities evident before the pandemic. As move through, and hopefully beyond COVID-19, industry efforts have shifted to returning to the office and we expect the pace of change to only increase. Just some of the developments ahead include:

• E-delivery: As the industry moves toward further shortening the settlement cycle, e-delivery will only become more necessary, and we are engaging with the SEC to make it easier for market participants to make this transition.
• Digital assets: Digital assets are at a pivotal point in our industry. We expect the increasing consumer and regulatory interest in crypto and digital assets to lead to new products, rules and requirements for broker dealers, banks, and asset managers.
• Distributed ledger technology (DLT): The potential benefit DLT could bring to the capital market ecosystem and infrastructure are a key topic of interest amongst market participants.
• Shedding legacy systems and manual processes: Financial services firms are embracing the cloud and other digital platforms to go paperless, increase operational efficiencies and speed to delivery.
• Transforming the customer experience: New capabilities are needed to anticipate customer expectations and better serve clients as they demand a more personal, immediate experience.

Modernizing the Delivery of Financial Communications

From health care explanations of benefits to income tax reporting, the trend toward electronic delivery is undeniable and for good reason: delivering materials electronically provides individuals with real-time, secure access to information in an environmentally-conscious manner.

SIFMA has long supported the electronic delivery of investor communications, including statements, confirmations, prospectuses and other disclosure documents. Investors from all demographics increasingly prefer to access information electronically making it easier to act on that information. Electronic delivery can also make information more accessible in other languages and in specialized formats for those with disabilities. For financial services, the interactive nature of electronic access via links and embedded information can make investor action and engagement easier and more likely to occur. In fact, studies have found that 401(k) participants who interact with their plans’ websites tend to have higher contribution rates. It is important to note that paper communications would remain an option for those who choose or for those without reliable internet service.

Adopting Digital Assets

DLT and digital assets, such as security tokens, can offer new and cost-efficient methods of capital formation. However, operational challenges for those hoping to adopt this technology exist and there are areas where regulatory clarity would be helpful in addressing these challenges.

Security tokens are securities issued solely on DLT that satisfy the applicable regulatory definition of a security or financial instrument under local law and/or a token that represents on DLT underlying securities/financial instruments issued on a different platform, where such representation itself satisfies the definition of a security/financial instrument under local law.

SIFMA is working with our member working groups to determine and identify the activities, requirements, and considerations for market participants engaging in operationalizing security tokens. There are a number of issues across the lifecycle of a security to consider, some of which must be addressed by stakeholders and regulators for the market to fully develop. The goal is to embrace innovation that creates efficient market structures while still providing the same investor protections that we have built up over decades.

As the industry moves forward with the broader adoption of these assets and their supporting technology, SIFMA believes dialogue between industry participants and regulators will help support the further growth of the markets for the security tokens and the adoption of the technology that supports them.

Developing Cryptoasset Markets

There is a need and urgency for regulators to develop in the near term a clear regulatory framework for cryptoasset markets that strikes the right balance among innovation, growth and regulatory conservatism. SIFMA believes regulatory coordination – not only among prudential regulators but also between prudential and market regulators – is necessary to achieve this balance, to minimize market fragmentation and to help ensure bank uptake and competitive equity across the financial services marketplace. Ultimately, a properly balanced framework will help to ensure the capital markets will be able to continue to serve the needs of businesses and households as efficiently and comprehensively as possible.

We have urged the Basel Committee on Banking Supervision’s to revise its consultative document on the prudential treatment of cryptoasset exposures to help realize the benefits that distributed ledger technology (DLT) can deliver across the real economy, to facilitate regulated bank involvement in cryptoasset markets and to provide an appropriately regulated and level playing field across the globe through use of the existing prudential framework. The benefits will be realized most widely and transparently when regulated banks, with a long history of existing customer relationships and experience with regulatory compliance standards relative to newer entities are able to play a meaningful role. The international coordination efforts will need to run parallel to the concurrent development and coordination of these regulatory frameworks in individual jurisdictions.