While speaking before the D.C. Blockchain Summit, Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo last week discussed the relationship between technology, regulation and markets, and described the steps the CFTC has taken to stay in step with innovations that have posed regulatory challenges.
Chairman Giancarlo touted the potential for such technological innovations, including blockchain and digital ledger technology (DLT), to transform the way that regulators gather information and lower operational costs for financial institutions. Interestingly, Chairman Giancarlo argued that blockchain and DLT could have helped regulators gather real-time trading data during the 2008 financial crisis, which he believes at a minimum could have prompted “better-informed” and “more calibrated regulatory intervention.”
Today, he believes that the current period of innovation poses unique regulatory challenges compared to previous timeframes. These modern challenges, according to Chairman Giancarlo stem from rapid technological developments, the disintermediation of key economic actors and the high levels of technological literacy necessary for regulators to keep pace. To address these issues, Chairman Giancarlo said that the CFTC has developed policies with the following elements in mind:
- Adopting an exponential growth mindset that is predicated on anticipating market developments;
- Creating an internal FinTech stakeholder in LabCFTC;
- Becoming a quantitative regulator capable of robust data collection, automated data analytics and artificial intelligence deployment; and
- Embracing market-based solutions, rather than applying a “paternalistic hand on markets” to steer them in regulators’ preferred direction.
Chairman Giancarlo also urged lawmakers to support legislation, such as that introduced by Congressman Austin Scott (GA), that would provide the CFTC with the legal authority to partner and collaborate with outside individuals and entities to test, demo and generate proof of concepts around emerging financial and compliance technologies.
These remarks reinforce Chairman Giancarlo’s “do no harm” approach to FinTech regulation that he has preached since joining the agency. However, with Chairman Giancarlo set to depart the CFTC at some point later this year, it remains to be seen whether the agency will continue to follow his approach. Clarity may be provided over the next few months, as Chairman Giancarlo’s nominated successor, Heath Tarbert, began his confirmation process earlier today.
