J Christopher Giancarlo is a commissioner of the US Commodity Futures Trading Commission (CFTC). He was nominated by President Obama on 1st August, 2013, and was sworn in on 16th June, 2014.
In this special feature for CoinDesk’s 2016 in Review, Giancarlo discusses why he believes the US needs to rethink its blockchain policy for 2017 and beyond.
I spoke a lot about distributed ledger technology (DLT) this past year because I believe in its promising benefits for the financial marketplace and financial regulators.
DLT may help market participants manage the enormous operational, transactional and capital complexity brought about by the legion of disparate mandates, regulations and capital requirements promulgated globally in the wake of the 2008 financial crisis.
For regulators, DLT may help transcend the fragmented regulatory structure by providing reference to a single, verified record of all financial transactions across regulated markets.
In order for this technology to flourish, however, regulators must come together and set uniform principles to encourage DLT investment and innovation.
That’s why, earlier this year, I outlined five practical steps that, my agency, the Commodity Futures Trading Commission (CFTC), and other financial regulators should take to encourage DLT and other financial technology.
- Put our best foot forward: Financial regulators should designate dedicated, technology savvy teams to work collaboratively with FinTech companies – both new and established – to address issues of how existing regulatory frameworks apply to new, digital products, services and business models derived from innovative technologies, including DLT.
- Allow ‘breathing room’: Financial regulators should foster a regulatory environment that spurs innovation similar to the UK Financial Conduct Authority’s (FCA) sandbox, where FinTech businesses, working collaboratively with regulators, have appropriate “space to breathe” in developing and testing innovative solutions without fear of enforcement action and regulatory fines.
- Get involved: Financial regulators should participate directly in FinTech proofs of concept to advance regulatory understanding of technological innovation and determine how new innovations may help regulators do their jobs more efficiently and effectively.
- Listen and learn: Financial regulators should work closely with FinTech innovators to determine how rules and regulations could be adapted to enable 21st century technologies and business models
- Collaborate globally: Financial regulators should provide a dedicated team to help FinTech firms navigate through the various state, federal and foreign regulatory bodies and regimes across domestic and international jurisdictions.
On this last step, financial regulators must address how to prevent ‘death from a thousand cuts’ by numerous state, federal and foreign regulators for FinTech firms that look to provide services across financial market regulatory jurisdictions.
Because emerging technology, such as DLT, has the potential to provide many benefits that transcend regulatory boundaries, financial regulators must start by putting forth uniform principles in order to avoid stifling innovation.
The CFTC and other US financial regulators are falling behind foreign jurisdictions in promoting FinTech.
The FCA, for example, has created a flourishing Innovation Hub that allows FinTech firms to introduce innovative financial products and services to the market and test new ideas through its Regulatory Sandbox.
Several other jurisdictions are now following the FCA’s lead.
The end of the year is generally a time to reflect on where we have been and where we would like to go in the year ahead.
The changing administration in the US provides an opportunity to take a fresh look at promoting DLT and FinTech innovation.
The five steps I have laid out provide a good roadmap. Further, I pledge to do my part in the new year to further DLT and FinTech innovation for the health and betterment of US financial and capital markets, market participants and the American jobs that they support.
Follow Chris Giancarlo on Twitter: @giancarloCFTC.
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