Disclaimer: The opinions expressed in this article are those of the author alone and do not represent the opinions of FINRA or Metaverse. It does not engage any of the organizations mentioned in the article to any kind of business relationship. All the information collected comes from the public domain and should not be treated as strategic or confidential information.

On October 18th, 2017, Financial Advisor Magazine Online Edition published a report highlighting some of the challenges faced by the Financial Industry Regulatory Authority (FINRA). Their mission is to safeguard 90 million investors across the US against harmful actions, financial fraud, insider trading, and unfair advantages. Nevertheless, the article claims that the organization lacks transparency and has been unwilling to publish information about the brokerage firms most likely to commit financial crime and misbehave. In the same report, Tracey Longo quotes a white paper written by Craig McCann, in which he stated that increasing transparency with regards to risky institutions could allow security experts to create innovative solutions to protect investors. On the other hand, FINRA cannot state a firm is guilty of any wrongdoing without proven violations.

In my opinion, Blockchain technology could be an interesting solution in such ambiguous situations. It would allow FINRA to increase its transparency, while keeping confidential information private through encryption on the Blockchain and only available to relevant, permissioned stakeholders such as security companies. In the following article, I describe the role and activities of FINRA and how the organization could streamline its day-to-day operations using the Metaverse Blockchain.

About FINRA

FINRA is a non-profit independent regulator mandated by the US Congress to write and enforce the rules for brokerage firms and brokers, ensure compliance from all major stakeholders, increase transparency in the markets, and educate investors. Their activities can be categorized as follows:

1. Protecting individual investors rights and promoting investor education.

2. Assessing the knowledge of brokerage professionals operating in the United States, ensuring the qualifications of trading professionals and issuing mandatory licenses to offer brokerage services.

3. Review of advertising materials and products to ensure sufficient disclosure concerning financial products under their supervision.

Metaverse, a solution to cut costs dramatically

As mentioned above, one of FINRA’s core responsibilities is to ensure compliance with U.S laws and regulations. To this end, FINRA investigators conduct routine inspections and inquiries based on investor complaints and the discovery of suspicious activities. These procedures are both cost and time intensive — for example, FINRA must pay for the travel expenses of its investigators, who spend significant amounts of time reconciling data across isolated systems, databases and paperwork.

I believe Blockchain solutions such as the Metaverse blockchain could significantly reduce costs and increase the efficiency of regulatory authorities. A trading data sharing platform created on Metaverse would allow data to be stored and encrypted on the blockchain. Then, regulatory authorities can register as Oracles to gain access to this data. Being stored on a public network, it would be available anywhere. Software could be developed to compare digitized paperwork to the actual data, to help identify potential issues and fraudulent transactions. This would reduce expenditure on business travel and expedite FINRA’s reconciliation and audit processes.

Metaverse, a decentralized and secure database to increase efficiency in data management

In addition, storing data on the Metaverse blockchain could facilitate the review of broker’s advertisements, websites, sales brochures, and other communication materials. On average, FINRA handles 100,000 advertisements and communication materials annually. By storing these materials as digital assets on the Metaverse blockchain, their registration and review process can be tracked and FINRA Oracles can immutably record each material’s approval status. This set of data can then be shared directly with brokers via their digital identities on Metaverse. Clearly, this has the potential to reduce the time spent on email communications and the review process. Furthermore, Metaverse’s digital identity service can be used to label brokers and brokerage firms as licensed.

FINRA analyzes 37 billion trades a day on average, and this number can reach 75 billion at its peak. The organization uses advanced data analysis techniques to spot potential abuses such as insider trading and techniques to gain an unfair advantage.

FINRA and other regulatory institutions currently rely on centralized servers that need frequent and costly maintenance. In addition, they are more vulnerable to hacking as all their data is stored in one place and the system contains multiple single points of failure, unlike decentralized distributed ledgers. Transferring data from centralized to decentralized systems will make it harder for hackers to get access to sensitive data as it is cryptographically encrypted and distributed over the database.

It is important to stress the incredible level of security blockchain technology provides, and that all information stored on the blockchain is confidential. Although Metaverse is a public blockchain project with open-source code, this only means that the transaction occurrence is publicly broadcasted — the data stored within transactions is still encrypted through public-key cryptography and remains private.

In addition, the entire Blockchain is secured through proof of work consensus. In such a system, the nodes participating in the proof of work are required to solve complex algorithmic problems in order to confirm transactions over the network. In exchange, the nodes receive ETP as rewards. In the future, Metaverse will transition to a proof of stake system, where ETP holders secure the network by verifying all transactions in a cost-efficient way instead of consuming too much energy by solving complex cryptographic algorithms.

Metaverse, a tool to improve Investor education services

Investor education is another key area where FINRA could benefit from Metaverse Blockchain technology. FINRA created and maintains an important set of tools that is extremely useful to investors, one of which is BrokerCheck. It can be easily integrated with the Metaverse blockchain: using Metaverse’s digital identity service, all information linked to an institution or individual could be attached to their “Avatar” and made searchable on the Metaverse Blockchain. To increase transparency, FINRA could also assign an “Under investigation” tag to brokerage firms on the Blockchain, which would make its services more transparent and allow security professionals to develop new solutions to tackle financial risk.

In conclusion, I believe the opportunities for Metaverse to cooperate with financial regulators and financial services are countless. Instead of cutting the middleman, I believe that Metaverse will enhance their value through Blockchain technology by increasing their efficiency and relevance. Finally, it is interesting to note that, similar to FINRA, the Metaverse Foundation also recognizes the importance of the open-source community and the wisdom of the crowd to improve its projects. It would be interesting to see how these organizations could find ways (strategic cooperation, Hackathons, co-hosted conferences, etc.) to cooperate in the future in order to make the American Stock Market safer and more secure.

To learn more about the Metaverse Blockchain and its ecosystem, you can visit Metaverse’s official website: mvs.org, read the white papers and follow Metaverse on its major social media platforms. Metaverse is currently open to partnerships with financial institutions in order to better understand their services and propose a tailored solution to their business issues. It also welcomes any suggestions you may have.