New tech challenges require research and outreach to stakeholders, regulators say

Regulators from around the world gathered at FIA Boca 2019 in Florida on Wednesday to discuss the emerging challenges they’re facing, particularly …

Regulators from around the world gathered at FIA Boca 2019 in Florida on Wednesday to discuss the emerging challenges they’re facing, particularly in the area of technology.

Paul Andrews, secretary general of the International Organization of Securities Commissions, said he doesn’t think regulators can take a uniform global approach to new technologies. IOSCO is “technology neutral” and mainly wants to ensure that new technology advances market integrity, protects investors and doesn’t create systemic risk, he said.

Eric Pan, director of the Office of International Affairs at the Commodity Futures Trading Commission, said “the time is not right for uniform approaches to technology” and that a diversity of approaches helps regulators learn from how various jurisdictions approach new technologies.

Self-regulatory organizations could offer a “promising way forward” on technology as they have the benefit of reacting faster because of their proximity to the market and the expertise of participants, Pan said.

Meanwhile, the CFTC is harnessing its LabCFTC initiative and has visited places such as Silicon Valley and Singapore “to get out of the classic bubble that we’re in” with regard to technology, he said. Fintech companies have less experience with regulators than traditional firms do, and regulators therefore need to make an effort to communicate with those technology companies, he said.

Lise Estelle Brault, senior director of fintech, innovation and derivatives at Quebec’s Autorité des marchés financiers, discussed her agency’s internal “lab” that allows for experimentation on issues such as initial coin offerings. The AMF produced the “AMFCoin,” a cryptocurrency that can’t be purchased, to help it understand ICO issuance and enforcement, Brault said.

Enforcement is vital, she said, because “if you can’t stop bad actors from moving into your jurisdiction, you’re not credible anymore.”

Paul Willis, technical specialist for commodities at the UK Financial Conduct Authority, discussed the FCA’s fintech sandbox, and he said such initiatives face the misconception that they pick “winners” and enable participants to conduct unregulated business. He noted that the FCA’s sandbox takes applicants from a wide range of backgrounds and focuses on identifying innovation, letting participants develop their business models or technology in safe environment that doesn’t interact in a significant way with the economy.

Jun Mizuguchi, deputy commissioner for international affairs at the Japan Financial Services Agency, talked about distributed ledgers, which he said present disintermediation-related challenges such as the concentration of ownership to a small number of people whose identities aren’t known publicly. Enforceability in this area will be difficult, and regulators might face more difficulty in achieving outcomes by “conventional” means, he said. Regulators need to be proactive in their outreach to engineers, miners and other stakeholders to better understand the DLT system’s structure, he said.

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US CFTC Believes Blockchain and Crypto Are Two Major Factors in Transforming Today’s Market

Chairman of CFTC also believes that the US agencies have realized the potential in the technology of Distributed Ledger Technology and embracing …
US CFTC Believes Blockchain and Crypto Are Two Major Factors in Transforming Today's MarketUS CFTC Believes Blockchain and Crypto Are Two Major Factors in Transforming Today's Market

J. Christopher Giancarlo, the chairman of United States Commodity Futures Trading Commission (CFTC) has said that the firm’s fintech innovation hub LabCFTC holds the key to exponential technological growth and market evolution. These comments were made by Christopher in his last appearance as the chairman during 44th Annual International Futures Industry Conference on March 14.

In his last address to the committee, Christopher emphasized on making blockchain and cryptocurrency as a part of the regular financial ecosystem as he believes the technology holds the key in advancing the Digital market.

Christopher also addressed the uphill task that would fall on the shoulder of regulators in bringing the exponential change to the current scenario. He said that the establishment of LabCFTC one small step towards achieving the daunting task at hand.

Talking about the contribution of LabCFTC towards making blockchain and crypto more mainstream has been appreciable as the lab has interacted with over 250 small and big innovators of the field, conducting lab hours across the United States and internationally. The LabCFTC was established two years ago keeping the Fintech in focus.

Christopher went on to say that the LabCFTC is not a regulatory sandbox and does not exempt anyone from CFTC rules. The lab is rather there to provide, “internal and external technological focus.”

He explained further,

“Internally, it means explaining technology innovation to agency staff and other regulators and advocating for technology adoption. Externally, that means reaching out and learning about technological change and market evolution, while providing a dedicated liaison to innovators.”

What Does LabCFTC Do?

LabCFTC the fintech arm of the CFTC would be involved with cooperation agreements with global regulators from Singapore, London, and Australia. Apart from the agreement, the fintech arm would also be responsible for the publishing of technology primers and public feedback solicitations.

Christopher also noted that the CFTC is not the only organization looking to work in coordination with the digital asset market. He went on to say that every US federal financial regulator has either created or are in the process of creating a side-arm just like LabCFTC.

Chairman of CFTC also believes that the US agencies have realized the potential in the technology of Distributed Ledger Technology and embracing market-based solution for innovation.

Conclusion

The statements made by the chairman of CFTC in his last address to the committee paints quite a rosy picture for the future of Blockchain and cryptocurrencies. Regulators are often portrayed as the villain and a roadblock in the major crypto boom. However, looking at the recent statement of CFTC chairman and the work done by LabCFTC, it’s quite evidential that even the biggest critiques have come around to accept the fact that the real future lies in the decentralization.

Cryptocurrencies and Blockchain technology is on the verge of expanding on the global level. Most governments around the world have been looking to incorporate both blockchain and crypto in their system, however, it would be one daunting task.

DOJ secures stay of CFTC case against cryptocurrency scheme My Big Coin Pay

Among other things, Crater and his affiliates falsely claimed that Coins were a functioning virtual currency with value, were backed by gold, and could …

The Department of Justice secured a stay of the discovery in the civil case pending resolution of a federal criminal case based on the same alleged misconduct.

Judge Rya W. Zobel of the Massachusetts District Court has granted a motion by the United States Department of Justice to intervene and stay the discovery in the civil case against My Big Coin Pay, Inc., Randall Crater, Mark Gillespie, and a number of relief defendants.

The Department of Justice has moved to intervene in this action for the limited purpose of moving for a stay of discovery pending resolution of a federal criminal case based on the same alleged misconduct.

Let’s recall that, in January 2018, the CFTC initiated a civil action against My Big Coin Pay, Inc., Randall Crater, Mark Gillespie, and relief defendants Kimberly Renee Benge, Kimberly Renee Benge d/b/a Greyshore Advertisement, Barbara Crater Meeks, Erica Crater, Greyshore, LLC, Greyshore Technology, LLC. On April 20, 2018, the CFTC filed an amended complaint, naming John Roche and Michael Kruger as additional defendants.

On February 26, 2019, a grand jury sitting in the District of Massachusetts returned a seven-count Indictment charging Crater with wire fraud and unlawful monetary transactions. The Criminal Action and the CFTC Action are founded on the same operative facts, the DOJ says. Any resolution of the Criminal Action, which is premised on the same nexus of facts as the CFTC Action, will significantly affect the result of the civil action. At a minimum, according to the DOJ, resolving the Criminal Action will greatly simplify the issues to be resolved in the CFTC case.

As set forth in the Indictment, Crater is charged with engaging in a scheme to defraud investors by soliciting investments in a proprietary virtual currency called “My Big Coins” or “Coins.” Between 2014 and 2017, Crater and his affiliates persuaded investors to purchase or invest in Coins by making numerous misrepresentations about Coins. Among other things, Crater and his affiliates falsely claimed that Coins were a functioning virtual currency with value, were backed by gold, and could be traded on exchanges. In reality, the Indictment alleges, Coins were not backed by gold or other assets, were not readily exchangeable virtual currency, and had little to no actual value. Over the course of the scheme, Crater misappropriated over $6 million in investor funds. Crater was indicted on February 26, 2019.

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Chairman of the CFTC Addresses the “Digital Trinity”: Technology, Regulation, Markets

He started by acknowledging that this era of financial technology innovation is more interesting than any technological advancement before it. Why?

The emergence of this new era of digital economy brought with it enormous benefits as well as disadvantages. To make matters more complicated, the technology – being a rather new innovation – is faced with several challenges and drawbacks: lack of standard governing structures, high price volatility, and a host of others.

These shortcomings have been the major deterrent factor so far, stunting the growth and acceptance of this technology. Therefore, regulatory agencies are forced to constantly devise ways to help keep the market in check and protect investors from being defrauded from their hard-earned cash. However, it has not been an easy task so far, not for the U.S SEC nor the U.S. CFTC or any other international regulatory body concerned with maintaining order in financial markets.

During the 4th Annual DC Blockchain Summit, the Chairman of the U.S. Commodity Futures Trading Commission (CFTC), J. Christopher Giancarlo, addressed his fellow regulators on what he titled the Digital Trinity: the technology, markets, and policy. In the course of the speech, he explained why this new technology is somewhat difficult to regulate compared to past innovations. In addition, he disclosed the technique adopted by the Commission to help tackle these difficulties and urged his colleagues both at the CFTC and other regulatory agencies to ‘‘keep going,’’ innovate with integrity and intelligently, and not to be dismayed.

He started by acknowledging that this era of financial technology innovation is more interesting than any technological advancement before it. Why? Because the development of new technologies and business models is intertwined with existing regulatory frameworks. He went further to point out the potential of blockchain technology and how much difference it could have made if blockchain was around during the U.S. housing bubble burst in 2008.

Still on the topic of the technology and markets, he asserted that distributed ledger technology (DLT), i.e. blockchain, is bound to make a lasting impact in several sectors including banking, securities settlement, trade reporting & analysis, title recording, payments, and cybersecurity.

He added that DLT may further enable financial market participants to manage transactional, operational, and capital complexities seen in the market. He noted that a study estimates that DLT possesses the potential to help financial institutions save up to $20 billion by 2022.

While the technology and market look very promising, policies by regulators is key to the sustenance of this market. Regulating financial market today is proving to be somewhat difficult due to exponential technological change. Unlike what we had in past decades, modern day technologies grow at an exponential rate, making it crucial, and almost compulsory, for regulators to keep up with the pace if they want to gain control of the market. And like I mentioned earlier, this hasn’t been an easy task so far.

The Chairman advised the group, pointing out some of the techniques that the CFTC adopted to stay up-to-date with this enormous change – Adopting an exponential growth mindset, creating an internal FinTech stakeholder, becoming a quantitative regulator, and lastly, embracing market-based solutions.

In conclusion, he urged his fellow regulators to keep fighting, solve problems, get competent advice and follow the law; despite the various challenges, be sure to keep pressing harder, and above all not to be afraid.

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CFTC chairman calls for light touch on blockchain regulation

Giancarlo also called for greater technological literacy among business … think tank, LabCFTC, to help it better understand emerging technologies.
Blockchain regulation (thodonal88/Shutterstock.com)

CFTC chairman calls for light touch on blockchain regulation

  • By Sara Friedman
  • Mar 08, 2019

Amid the accelerating pace of innovation, the Commodity Futures Trading Commission faces increased pressure to keep up with new financial technologies, nontraditional business models and rapidly changing markets that can challenge existing regulatory frameworks.

That evolving environment calls for a light regulatory touch when it comes to distributed ledger technologies, according to the chairman of the agency that oversees crypto-related futures and derivatives markets.

“It is frequently tempting to apply a paternalistic hand on markets in order to steer them in desired directions or eliminate all risk — a truly futile exercise,” Commodity Futures Trading Commission Chairman Christopher Giancarlo said in a March 6 speech at the D.C. Blockchain Summit.

Giancarlo said he wants “careful oversight, targeted enforcement and proper guardrails” where appropriate, and he urged “individual concerns or judgments” to not “override the availability of markets for others to make their own determinations or to pursue their own goals.”

Giancarlo also called for greater technological literacy among business leaders to keep up with market innovations, including distributed ledger technology.

In 2017, the CFTC created its own internal think tank, LabCFTC, to help it better understand emerging technologies.

LabCFTC has published primers on virtual currencies and smart contracts, launched an innovation competition and served as point of contact for members of Congress and other domestic regulators.

CFTC currently lacks the legal authority to work with outside FinTech entities in a research and testing environment, but Giancarlo said he wants authority from Congress to partner, collaborate or engage in cooperative agreements regarding financial and compliance technologies with different entities including federal, state or local agencies, foreign governments or international organizations. Rep. Austin Scott (R-Ga.) introduced a bill during the last legislative session to give the CFTC this authority.

“We look forward to the next phase of LabCFTC as we look to deploy our increased agency budget in support of modernization and capacity-building,” Giancarlo said. “And, I am pleased that at this point in time every federal financial regulator in the U.S. either has or is creating an innovation program or office similar to LabCFTC as we all seek to develop a blue print for regulatory modernization.”

The CFTC chairman acknowledged that his agency’s regulations were designed for environments that have since been transformed, but he told industry that these regulations remain relevant and enforceable and encouraged engagement with LabCFTC and the agency’s regulatory divisions on improving oversight.

The congressional approach

On the second day of the D.C. Blockchain Summit, Rep. Todd Emmer (R-Minn.) laid out his priorities for Congress when it comes to blockchain technology. Emmer, who introduced the Blockchain Regulatory Certainty Act in January, called for light regulatory approach that is simple and concise. Emmer wants to exempt blockchain developers and services providers who do not handle consumer funds from U.S. money transmitter laws.

Although blockchain and cryptocurrency innovation has flourished, “we are currently operating under regulation by enforcement,” Emmer said in a March 7 speech. “Regulators must provide clear rules of the road that ensure that even the smallest startup with a brilliant idea can be become a major enterprise.”

Emmer was enthusiastic about the National Action Plan for Blockchain, published by the Chamber of Digital Commerce in February. The plan provides a set of guiding principles for government related of blockchain technology.

“I remain concerned that we could overreact and take the liberty away from the individual by handing it to the government,” said Emmer. “As the Chamber of Digital Commerce has outlined, before we stifle, we must encourage the private sector to develop these technologies. The National Action Plan also provides a needed call for clear regulation prior to enforcement.”

About the Author

Sara Friedman is a reporter/producer for GCN, covering cloud, cybersecurity and a wide range of other public-sector IT topics.

Before joining GCN, Friedman was a reporter for Gambling Compliance, where she covered state issues related to casinos, lotteries and fantasy sports. She has also written for Communications Daily and Washington Internet Daily on state telecom and cloud computing. Friedman is a graduate of Ithaca College, where she studied journalism, politics and international communications.

Friedman can be contacted at sfriedman@gcn.com or follow her on Twitter @SaraEFriedman.

Click here for previous articles by Friedman.

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