Earlier this morning, CFTC Chairman Christopher Giancarlo testified before the House Agricultural Committee. The following are highlights of “Fin Tech” issues addressed during the course of that testimony.
- Effect of Regulation on Innovation – In response to a question from Congressman David Scott (D-GA) regarding the effect of OCC Fin Tech charter and other similar proposals on innovation, CFTC Chairman Giancarlo indicated that new fin tech innovators come in two buckets: start-up innovators and incumbents (large, established financial firms). Chairman Giancarlo indicated that he has a concern that that the charter basis will empower the “incumbents,” at the expense of the start-up innovators. He believes that the innovators can bring the change and regulations should not disadvantage start-ups in favor of incumbents; an OCC charter has the risk of creating such a disadvantage.
- U.S. Regulations Relative to Other Jurisdictions – In response to a question from Congressman Austin Scott (R-GA) regarding the “state” of U.S. regulations relative to other nations and markets, CFTC Chairman Giancarlo says that we are doing well with respect to finance and access to talent. But, the CFTC will need additional authority through legislation, so that the regulator can deal with 21st century digital markets; the existing rules are written for 20th century analog markets, not 21st century digital markets.
- Jurisdiction of CFTC Over Digital Currencies – In response to a question from Congressman James Comer (R-KY) regarding jurisdiction of CFTC over digital currencies and DLT (and another, similar assertion by the SEC over digital currencies), CFTC Chairman Giancarlo explained that we need to re-interpret our rules in light of fast-pace crypto innovation. He explained that we are approaching this straight down the middle and calling “Balls and Strikes,” meaning that cryptocurrencies are commodities. He referenced both regulation (such as registration of SEFs or, more generally, “derivatives exchanges”) and enforcement (including the recent action that involved bitcoin, but not a derivative).
- Multi-Agency Approach is Better Than Silos – In response to a question from Congresswoman Lisa Blunt Rochester (D-DE) regarding approaches to fin tech regulation, CFTC Chairman Giancarlo remarked that the UK’s coordinated, “multi-agency” approach to fin tech regulation is a better model than a model of “agency silos”. He noted that innovators are able to go for “one stop shopping” in respect of guidance.
- U.S. Ability to Lead in Fin Tech Regulation – In response to a question from Congressman John Faso (R-NY) regarding what could happen to our markets if we do not change our approach to fin tech regulation, CFTC Chairman Giancarlo observed that we are able to regulate and have done so successfully, as evidenced by the fact that Singapore modeled its fin tech regulation on the U.S. approach to internet regulation in 1980’s (which was a “first do no harm” approach).
- The Need for Legislative Changes to Enable Regulatory Changes – In response to a question from Congressman Glenn Thompson (R-PA) regarding what can be done to allow on the legislative front to enable the CFTC to “catch up with technology and innovation” on the regulatory front, CFTC Chairman Giancarlo explained that LabCFTC is crucial to understanding the markets and how the CFTC can use new technologies to carry out its mandate. He also indicated that the CFTC’s regulations are going to be driven on the basis of a sound understanding of how markets are changing with that understanding firmly rooted in economics. Chairman Giancarlo specifically explained that the CFTC would like to be authorized to place CFTC regulators on secondment with another foreign regulator (like Bank of England), but the CFTC lacks the statutory authority to do this. In addition, the CFTC would like to participate in proof of concept beta testing on technology without being deemed to have received “compensation” from the innovator, although this sort of an approach to beta testing technology would likewise require legislative changes.