Academic journal article Law and Contemporary Problems

Fintech and Secured Transactions Systems of the Future

Academic journal article Law and Contemporary Problems

Fintech and Secured Transactions Systems of the Future

Article excerpt

I

INTRODUCTION

A quarter century ago I served as special editor of the Law and Contemporary Problems issue "Technology and Commercial Law." (1) My personal contribution to that issue focused on the role of information technology in the holding of securities through intermediaries, such as stockbrokers and banks (2)--these securities are now known as "intermediated securities." (3) I return here to the role of technology and commercial law--a personal Groundhog Day of sorts. Today, rapid developments in financial technology, or "fintech," dominate discussions of financial markets. As George Walker has summarized this phenomenon:

   FinTech has emerged as a powerful new market force as a result of
   the coming together of a number of disconnected trends. Significant
   advances have occurred in the areas of computer and digital
   technology, the Internet, mobile telecommunications as well as
   economics and finance, which have transformed traditional areas of
   study and created important potential new business structures and
   operations. (4)

Other contributions to this current symposium issue focus on the regulatory and systemic aspects of secured transactions, (5) which are issues of great social significance as well as controversy. This article addresses a more foundational aspect: public and private registries. Registries provide the legal bases for the effectiveness of secured transactions, without which the role of security interests (6) would be trivial or nonexistent. And registries provide a fertile ground for considering the role of fintech.

These days discussions of fintech almost invariably include a claim that so-called "distributed ledger technology" (DLT, or "blockchain" technology) is poised to revolutionize the financial markets. (7) But this article does not dwell on these details of the relevant technology. (8) Instead, it takes a functional approach to the future of secured transactions registries. Those experienced with secured transactions in the credit markets, including lawyers and law professors, may have much to offer by way of identifying the goals and requirements that registries must address. But once these needs are identified, it is for fintech to determine how the application of technology might address these needs. Secured transactions experts are well positioned to issue to the fintech sector metaphorical requests for proposals for technology-related structural reforms of secured transactions regimes. It is up to the fintech sector to devise and propose such reforms--or concede that it is unable to do so.

Earlier work concluded that the realization had emerged "that the 'impossible' is the 'normal' in the financial markets" and "perhaps the same realization will increasingly be seen as applicable to information technology." (9) That previous discussion led to a recent observation that "if we are worrying only about what we believe is possible, we are almost surely missing something important."1" In this spirit, this article offers these observations about the future of fintech for secured transactions.

The article proceeds as follows. Part II considers fintech in secured transactions in the current legal and market environment. Much of this fintech primarily involves public and private registries. In general, notices of security interests, and in some cases other rights and interests, are lodged and searched in a registry. Part II also examines the operation and rationale for these public and private registries--their function as conditions for third-party effectiveness, or perfection, and priority of security interests. These registries generally are grounded on the identification of grantors of security interests, the identification of the property that is the subject of security interests (the collateral), or both.

Technology plays a central role in the operations of registries. The operations primarily consist of the registration of security interests and searching for the existence--or possible existence--of security interests, including the identification of grantors of interests and property constituting the collateral. …

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