CFTC Acting Chairman: Blockchain makes compliance easier, I will regulate carefully to avoid stifling it

Although Donald Trump has yet to formally appoint CFTC Commissioner Chris Giancarlo to the position of chairman, Giancarlo has already capitalized on Trump’s slogan: “Fighting for American market reform.”

Speaking publicly for the first time as “acting chair,” Giancarlo laid out his future regulatory “agenda” for blockchain and distributed ledger technology (DLT) in front of 300 swaps traders, analysts and others at the SEFCON event in New York this week.

The current CFTC commissioner yesterday reiterated the regulator’s five-point plan for promoting the technology, adding that if successfully implemented, he believes DLT could make regulatory compliance much simpler — even if Trump has plans to eliminate controls on the technology’s development altogether.

Giancarlo said:

“DLT can enable market participants to manage the enormous operational, transactional, and capital complexities created by the Dodd-Frank Act ^[1] . At the same time, it may provide regulators with the market visibility they need to fulfill their responsibilities in regulating financial markets.”

To achieve this, Giancarlo expanded on his plans to “advance” DLT and other financial technologies, which he first outlined to regulators last May.

Specifically, he said regulators should assign “smart” teams to work with financial technology companies to create safe environments for innovators to experiment, “get directly involved” in helping to create proofs of concept and work with regional innovators and international regulators to minimize duplication of work.

Call for cooperation

Giancarlo's America-centric mantra doesn't appear to be coming at the expense of collaboration.

In fact, he believes the CFTC needs to work with other U.S. financial regulators to “follow the lead” of the United Kingdom, Singapore, Australia, and Japan in this regard, in order to avoid stifling innovation and the potential benefits of DLT.

The DLT initiative is part of Giancarlo’s five-point agenda for U.S. market reform, which includes providing customers with choice in trade execution, fixing swap data reporting, making the regulatory culture more progressive, and encouraging innovation in financial technology (a category that includes his DLT initiative).

Giancarlo said that if distributed ledger technology is successfully implemented, it could not only make Dodd-Frank compliance easier, but could actually strengthen the job market.

Giancarlo said that “fighting for American market reform” means advancing financial technology innovation for the health and improvement of U.S. financial and capital markets, market participants, and American jobs.

Reactions from attendees

Reactions to Giancarlo’s speech were largely positive, though some remained skeptical about whether DLT’s potential benefits are worth implementing.

For example, Kevin McPartland, head of research at Greenwich Associates, said that even if Trump officially appoints Giancarlo to run the CFTC, he does not think the CFTC will make big changes in the first year.

In contrast, McPartland believes that regulatory considerations may not even change much in the early days of a new chairman’s tenure, as proposed regulatory changes will be shelved while the new chairman is busy replacing previous commissioners.

However, once the new CFTC team is in place, McPartland believes Giancarlo will likely align his blockchain efforts with Trump’s policies.

McPartland described the impact this has on regulation:

“I’m not sure if this is a good thing or a bad thing, but there will be some differences. If financial regulators take a more hands-off approach, this should give the industry more freedom to innovate and move forward without spending too much time and money on compliance.”

Micaeh Green, a partner at Steptoe & Johnson LLP and co-chair of the law firm’s government affairs and public policy team, largely agrees with McPartland’s position: Giancarlo’s regulation of the blockchain industry is likely to be very relaxed.

Green believes that Giancarlo may increase the interaction between regulators, technologists and market professionals to ensure that blockchain development meets real-life needs but does not hinder potential blockchain applications in various fields.

“I think what Giancarlo is saying is, ‘Let’s see if DLT works.’ From a market perspective, DLT could be very efficient and could save a lot of money, so it’s very important to reduce costs.”

Conflict with Trump's ideas

Optimism aside, the future may not be so smooth.

As the Financial Times reported yesterday, Giancarlo’s support for Dodd-Frank — where the potential benefits of blockchain would make compliance easier — would put him in direct conflict with Trump.

Trump, who promised during his presidential campaign to “dismantle” Dodd-Frank, the regulatory overhaul enacted after the 2008 financial crisis to help increase oversight of the industry, appears to have little interest in Giancarlo’s idea that blockchain could simplify compliance.

Larry Tabb, industry analyst and founder of the Tabb Group, said that even if a blockchain solution were feasible and useful, the scale of cost savings such a solution would bring might not be worth implementing.

“The amount of work required to make blockchain a viable product is simply too high. Let’s say we spend $100 million to build a platform. Every company has to chip in to implement it. We’re talking about hundreds of millions of dollars just to improve a process that’s still possible today.”

However, Giancarlo reiterated his speech in an effort to make his future plans more clear, regardless of what the future may bring.

Giancarlo said:

“My priorities during my tenure as Acting CFTC Chairman – and if I am fortunate enough to be nominated and confirmed by the Senate – will not be surprising. They are part of an agenda I will call ‘The Fight for American Market Reform.’”

Notes (↵ returns to text)

1. The Dodd-Frank Act is considered to be the most comprehensive and stringent financial reform bill since the Great Depression. It will become another cornerstone of financial regulation alongside the Glass-Steagall Act (Banking Act of 1933) and set a new benchmark for global financial regulatory reform.