Today's rapidly changing financial environment calls for a light regulatory touch when it comes to distributed ledger technologies, says the chief of the Commodity Futures Trading Commission.
Amid the accelerating pace of innovation, the Commodity Futures Trading Commission faces increased pressure to keep up with new financial technologies, nontraditional business models and rapidly changing markets that can challenge existing regulatory frameworks.
That evolving environment calls for a light regulatory touch when it comes to distributed ledger technologies, according to the chairman of the agency that oversees crypto-related futures and derivatives markets.
“It is frequently tempting to apply a paternalistic hand on markets in order to steer them in desired directions or eliminate all risk -- a truly futile exercise,” Commodity Futures Trading Commission Chairman Christopher Giancarlo said in a March 6 speech at the D.C. Blockchain Summit.
Giancarlo said he wants “careful oversight, targeted enforcement and proper guardrails” where appropriate, and he urged “individual concerns or judgments” to not “override the availability of markets for others to make their own determinations or to pursue their own goals.”
Giancarlo also called for greater technological literacy among business leaders to keep up with market innovations, including distributed ledger technology.
In 2017, the CFTC created its own internal think tank, LabCFTC, to help it better understand emerging technologies.
LabCFTC has published primers on virtual currencies and smart contracts, launched an innovation competition and served as point of contact for members of Congress and other domestic regulators.
CFTC currently lacks the legal authority to work with outside FinTech entities in a research and testing environment, but Giancarlo said he wants authority from Congress to partner, collaborate or engage in cooperative agreements regarding financial and compliance technologies with different entities including federal, state or local agencies, foreign governments or international organizations. Rep. Austin Scott (R-Ga.) introduced a bill during the last legislative session to give the CFTC this authority.
“We look forward to the next phase of LabCFTC as we look to deploy our increased agency budget in support of modernization and capacity-building,” Giancarlo said. “And, I am pleased that at this point in time every federal financial regulator in the U.S. either has or is creating an innovation program or office similar to LabCFTC as we all seek to develop a blue print for regulatory modernization.”
The CFTC chairman acknowledged that his agency’s regulations were designed for environments that have since been transformed, but he told industry that these regulations remain relevant and enforceable and encouraged engagement with LabCFTC and the agency's regulatory divisions on improving oversight.
The congressional approach
On the second day of the D.C. Blockchain Summit, Rep. Todd Emmer (R-Minn.) laid out his priorities for Congress when it comes to blockchain technology. Emmer, who introduced the Blockchain Regulatory Certainty Act in January, called for light regulatory approach that is simple and concise. Emmer wants to exempt blockchain developers and services providers who do not handle consumer funds from U.S. money transmitter laws.
Although blockchain and cryptocurrency innovation has flourished, "we are currently operating under regulation by enforcement,” Emmer said in a March 7 speech. “Regulators must provide clear rules of the road that ensure that even the smallest startup with a brilliant idea can be become a major enterprise.”
Emmer was enthusiastic about the National Action Plan for Blockchain, published by the Chamber of Digital Commerce in February. The plan provides a set of guiding principles for government related of blockchain technology.
“I remain concerned that we could overreact and take the liberty away from the individual by handing it to the government,” said Emmer. “As the Chamber of Digital Commerce has outlined, before we stifle, we must encourage the private sector to develop these technologies. The National Action Plan also provides a needed call for clear regulation prior to enforcement.”