CFTC's Giancarlo: Regulators Need to Help Distributed-Ledger Technology Grow

Fintech innovation was one of five elements Giancarlo discussed while giving an overview of an agenda he's called "Making Market Reform Work for America."

"I have also called for the CFTC to be less focused on the past and more on the present and the future of derivative markets. I have called for regulators to encourage distributed-ledger technology and financial technology innovation," Giancarlo said. "I have said that the CFTC's regulatory framework must catch up to 21st century digital markets. And, I have raised concerns about marketplace cyber security, which is undoubtedly one of the greatest threats to functioning world markets and economic stability."

Delighted by DLT

Giancarlo reiterated his support for DLT use cases in the capital markets, a point he said he's consistently made over the past year. He discussed the benefits regulators could enjoy from effectively implementing DLTs.

"DLT may allow market participants to manage the enormous operational, transactional and capital complexities brought about by market reform," Giancarlo says. "At the same time, it may provide regulators with the market visibility necessary to fulfill our mission to oversee healthy financial markets."

He stressed, however, that regulators need to be willing to allow the technology to grow. A "do no harm" approach is vital to DLT's success, according to Giancarlo, so that the technology is not stifled before it can mature.

Giancarlo cited the UK's Financial Conduct Authority's (FCA) innovation hub and regulatory sandbox as examples of effective ways a regulator can help foster innovative technology like DLT. While the actual work being done around fintech in the US might be ahead of the UK, he said London is far ahead of Washington when it comes to openness of rule changes necessary in response to fintech innovation.

"A consensus, I believe, around a 'first, do no harm' approach is the right way to avoid impeding essential innovation by protracted rule uncertainty or uncoordinated actions," Giancarlo said.

Ahead of the Curve

Giancarlo's final point was the need to have a regulatory culture that is forward thinking. He pointed to automated and algorithmic trading, big data, artificial intelligence, smart contracts and DLT as examples of breakthrough technologies that are driving a change that is fundamentally altering the way global trading markets operate.

He said that as acting chairman he planned to extend the comment period for the supplemental notice of the much-discussed Regulation Automated Trading (Reg AT) past its Jan. 24 deadline.

"Our regulation at the agency has not kept pace. In too many ways, we remain an analog regulator of an increasingly digital marketplace, curtailing its effectiveness in overseeing the safety and soundness and the vibrancy and the health of markets," Giancarlo said.