In testimony prepared for the House Financial Services Committee, Securities and Exchange Commission Chairman Gary Gensler says brokerages that “gamify” trading — by using appealing visual graphics to reward a user’s decision to trade, for instance — may encourage frequent trading that results in worse outcomes for investors. Some Democratic lawmakers have blamed gamification for the boom in individual trading that helped drive the rise in GameStop shares.
Mr. Gensler, who will appear before lawmakers on Thursday, also said the SEC would study regulatory changes in response to the March blowup of Archegos Capital Management, an unregulated family-investment vehicle of hedge-fund veteran Bill Hwang whose leverage-fueled bets led to more than $10 billion in losses at major global banks.
Policymakers are increasingly confronting a new problem, though: the entry of technology companies into financial services throws their trade-off framework off-kilter. There are two issues.
First, financial regulators don’t have jurisdiction over technology companies. They have jurisdiction over their financial activities but not over the companies themselves. At the entry level, this works fine. When a company wants to do payments, they need to get a payments license and when they want to do credit underwriting, they need a credit license.
Sometimes, new entrants skate round these rules. Afterpay in Australia is not regulated as a credit provider since it doesn’t impose a charge for the ability to pay; nor as a payment system since it conducts relationships bilaterally between consumers on the one hand and merchants on the other. In response to impending regulatory scrutiny, the company points out that the major card providers got away with it for 20 years. “The dominant international card payment systems…were launched in Australia in 1984 and were not subject to RBA [Reserve Bank of Australia] regulation until 2004.”