Mar 20, 2023

The Commodity Futures Trading Commission (CFTC) has named former White House official Carole House to chair the newly-formed tech advisory group with members that include executives from Circle, TRM Labs and Fireblocks.

Video transcript

The CFTC is naming crypto leaders to its new technology advisory committee where executives from Circle TRM labs and fire blocks are among those named to the group. Joining us now is former White House National Security Council Director of Cyber Security and Secure Digital Innovation, Carol House Carol. So you're going to be the new chair of the technology advisory committee and it will hold its first meeting this week at the CFTC. So what's going to be on the agenda? Um I'm really excited and thank you so much for, for having me to talk about the great work that's happening at the tech. Um uh As you mentioned this, Wednesday is the inaugural meeting under the sponsorship of Commissioner Christie Goldsmith Romero. Um The really the, the key issues that we're going to be diving into will include some presentations focusing on the technology policy um and legal implications related to D I responsible artificial intelligence as well as cybersecurity implications for commodity and derivatives markets. So, what are some of the top priorities there, Carol? Yeah. Um I think the top priorities for, for the, for the commission in res standing back up and reconstituting the attack is to make sure that they have um this incredible group of experts. And I'm so excited about the group of experts that the commission has selected to serve on the committee and honor that I'm um that I'm gonna be chairing. But what they, what they really want is to be able to draw dive a deep dive, understanding of the emerging technologies that are currently evolving and the role that they play in the risk landscape. A risk equation means having to understand the threat landscape, the vulnerabilities that exist now or could be exploited in the future as well as the great mitigations that are potentially presented by emerging technologies like DLT like cyber security and A I solutions. Um So I think they want to understand the practical reality of what the developments and the technologies look like where the greatest risks are and then what we potentially could recommend to the commission to do related to um regulatory framework and policy approaches, but also promoting the positive technological innovations in the sector that are needed. So, uh we, you know, we are they looking at uh digital assets all in the same with the same lens? Are, are they looking at uh crypto as just one big thing or is it some of it are commodities? Some of them are securities? If so, which are which and how did they approach stable coins? You know, we, we obviously had the executive order on stable coins and, and that's been a big factor to some degree and it has been part of that has played out in this uh recent banking crisis was circle not being able to access its funds for us DC. So um looking at this, uh how, how is it going to approach digital assets? Yeah, I think that digital assets is a huge priority. Glad that you brought up the spectrum of issues that have implications for the CFTC and commodity markets. Here. Part of the tax mandate is not just looking at implications for emerging tech on commodities, but also more broadly on financial services. I think that's an important broad scope to have since obviously other types of financial institutions can, can deal with and engage in derivatives activity. So I think that the CFTC is trying to get a broad understanding of the implications for all of these technologies and even the roles that stable coins and others might might play that futures commissions, merchants may engage in and and more broadly that they'll be used in derivatives markets. So I think that that they're definitely taking an activity based approach. That's what I've always seen from the CFC, looking for the things that the categorization of commodities. But also wanting to understand that scope of when assets are being used that meet the definition of securities and provisions like the how we test. But also looking at those things that are more functional substitutes for money like you mentioned, stable coins are a priority for them to understand as well. Well, there seems to be some conflicting stances here because we have Sec chair, Gary Ganzer saying that proof of stake tokens could likely be securities which would implicate Ethereum. The CF DC has been saying, well, it's a commodity. How, how do you see these issues being resolved? Um I, I think ultimately, ultimately, the regulators are having to look at each individual instance as under the specific facts and circumstances that are, that are occurring. Um Just like with, with other consensus mechanisms and proof of work systems, proof of stake systems are not all made alike. So I, I think that there's a very deliberate intent by Commissioner Col Smith Romero and reconstituting the attack to try to look at some of those specific most common and prevalent models to um to, to really make that determination of when something is functioning more like a commodity versus when it's engaging in securities activities. So I, I, I'm sure that there will be engagement and thinking about where things fall underneath the jurisdiction of the SEC versus CFTC. But um I, I definitely think that the CFTC still sees a significant amount of domain that's underneath their purview. Um And then also potential future legislative changes that could expand that purview. Now, are you working with uh different departments in the executive branch? And if so, which one do you, are you guys uh expecting to work with the most. Is it going to be Treasury Defense? Is it going to be, you know, where, where are you guys, uh NSC uh the, some of the, the agencies, the alphabet soup of, of uh I, you could say you could say it's, it, it, it's, you know, everyone, but are there specific um, departments that you'll probably be working with closer than others like transportation? Yeah, great question. Um II I do think that the whole of government approach uh that was established under the executive order for digital assets will keep going. That will include most of those stakeholders. But honestly, for this specific committee, um our, our purpose is to like directly and deliberately advise the commission um and not any other specific regulators. Um Though I will say that there are members of other federal agencies that are included. Uh uh You have Kavita Jane from the Federal Reserve and also Todd Conklin from the Department of the Treasury. So uh at the moment, the only specific other federal agencies that I'm aware of that will be working with on the committee are Treasury and the Fed. I also wanted to address our last guest to Custodio Ceo Kayla Long. She said that she believed that there was some sort of coordination among government agencies, the regulators, et cetera to snuff out crypto uh firms from the banking system. And there's this whole conspiracy if you will called choke 0.2 point. Oh, that is under the belief that, that there are, there is a force of uh government policymakers, regulators, et cetera that want to remove crypto firms from the bank us banking system. I I just want to get gather your thoughts on that. Um I, I did hear her, her remarks and I always appreciate her perspective as uh as always, I will say that from, from my time at the White House, what I saw was was really the balanced approach that was pushed in the executive order, which was much more just coordination of the strategic policy objectives to mitigate the significant risk that is seen in crypto, but then also drive the kinds of technological and policy innovations that are needed to achieve their positive potential. So I certainly didn't see evidence of that the White House does not direct anything with the regulators by my understanding, certainly not in my role when I was there. But I would just say that I know that it takes a long time for enforcement actions and other things to come to fruition. So some of the things that we have been seeing are just the culmination of many years of work. Um But uh yeah, but uh otherwise, um I think what, what I've seen has been um a balanced approach on one side trying to mitigate the risk and on the on the other side, try to figure out where we can drive um the right types of, of positive technological and policy developments to meet high standards. Here, we see a um we, we, we see a, a bit of a financial crisis going on because of the banking sector. We saw quite a bit of a crisis over the past several months involving crypto first, you know, well, we can go back to the collapse of us T but also FTX uh and all the way to, as we, we just discussed uh circle not being able to get uh you know, deal with its own funds because of the banking crisis. Uh for us DC. Uh do these particular issues? Uh you know, how do you see that as a threat, let's say to national security, how can they be exploited? What, what sort of problems do you first see happening and threats happening specifically? Because not necessarily people hacking into uh crypto account, uh hacking into uh central bank uh uh uh centralized exchanges. But the, the um the, the volatility happening in the crypto markets and in the banking sector, how do you think those could be exploited by enemies? And what are like the most, the most pressing threats right now uh for, for our security? Yeah, I think holistically and I know that there's, there's different reasons that, that things like FTX and Terra Luna happened compared with what's happened with the banks lately. But, but ultimately financial stability is critical for achieving us objectives because the strength of the US financial system really sits at the heart of so many parts of the toolbox of us national security tools and capabilities. So I think that anything that potentially weakens the sector could be of concern. We're also hearing very strong statements from the regulators and the president to um yeah, to, to strengthen the system and to highlight that there should be confidence in it more holistically. But I will say also that something that is key of national security concern is that driving driving any any of the actors in Cryptocurrency and other financial markets to have centers of gravity outside of the United States is also counter to us national security objectives. Uh Because if they're outside of the US, are they underneath us regulatory frameworks and reach and strength of sanctions regimes? So I think that those are critical things that have to be accounted for as well in regulatory approaches, any near term threats, let's say in the next 3 to 6 months that, that you see exploiting the situation. Um II, I guess the, the critical one could be like what, what ultimately is is driven overseas. Um I think that I think that it's critical to be able to not only enforce uh against actors that are acting poorly but also to provide very clear paths um under under supervision so that we can encourage the innovation to happen here. The next six months could be critical for that kind of um for that kind of market evolution. All right, Carol, thank you for joining us this morning. That was former White House National Security Council, Director of cybersecurity and Secure Digital Innovation. Carol House.

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