Regulators must work harder to keep pace with fintech innovation, says CFTC chairman

28 November 2017 5:43pm
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15 November 2017. By Tsering Namgyal.

Finance industry regulators need to put more effort into keeping up with rapidly evolving technology in the sector, or find themselves at risk of being unable to discharge their duty to safeguard markets, says Chris Giancarlo, chairman of the US Commodity Futures Trading Commission.

“Unfortunately, we have not fully kept pace with transformation, at least not so far,” Giancarlo said during a keynote speech at the Singapore Fintech Festival* today.

To get a better handle on fintech innovation, CFTC has launched a new tech lab in New York named Lab CFTC, which is similar in spirit to the sandbox arrangements set up in the UK and Asian jurisdictions such as Singapore, he said.

The CFTC already has a mechanism by which it can offer “no-action relief” to certain startups,  technically equivalent to a sandbox regime, Giancarlo said.

“We had the sandbox component, but we did not have the technology component,” he said.

The lab, which has already met with nearly 100 startups, will provide the CFTC with a real-world setting in which it can observe and learn whether rules constitute any resistance to new innovations, he said.

Giancarlo also highlighted the need for the regulators to create frameworks and reporting requirements that were more sensible and practical.

“It is incumbent upon us to be smart, and a good, practical regulator,” he said. “We’ve got a job to do. But we don’t want people not to comply because it’s impossible to comply.”

Giancarlo said he was particularly interested by advances in regulatory technology, or regtech, which helps firms comply with rules using automation and data analysis. “We need to adopt a lot of these technologies,” he said.

He said regulators were still looking at data in an outmoded way that was largely manual, and that they needed to move into an environment that was more automated and used Big Data and pattern recognition in data analysis.

Giancarlo said the CFTC was technology-neutral on Bitcoin, which it regarded as a commodity, and approached it as it would “any other emerging technology.”

“If it is legitimate, we will act on it. If it is illegitimate, we will act on it,” he said, pointing to recent action against a Bitcoin firm in the US. The CFTC is currently reviewing a plan by the Chicago Mercantile Exchange to launch a Bitcoin futures product.

Giancarlo said the commonly-held view that the CME would need approval from the CFTC for such a project was inaccurate. All the CME would need to do, as an exchange, would be to “self-certify” its plan, which would then be reviewed by the CFTC as a regulator. He said the CFTC would complete its review in due course.

The CFTC has recently published a primer on virtual currencies, which Giancarlo said was available on its website.

*Singapore Fintech Festival, Nov 13-17, 2017

Fintech Regulation in 2018