Blockchain Can Help Regulators Oversee Markets, Says CFTC Chairman

The Commodity and Futures Trading Commission (CFTC) and other regulators will have to be at par with the new technologies like artificial intelligence and distributed ledger technology (DLT, or blockchain-inspired database system), its chairman has said.

These technologies, Christopher Giancarlo said in his speech at the FinTech Week conference at Georgetown University Law School, will likely become ubiquitous to commodity and financial derivatives markets.

The keynote was published Wednesday by the CFTC, which regulates commodity, futures, and derivatives markets. What Giancarlo meant was that the commission must be proactive in regulatory data collection, automated analysis, data-driven policy application, and become a “quantitative regulator.” The chairman was said technological advances including DLT could help regulators better oversee trading markets.

"Emerging digital technologies are impacting trading markets and the entire financial landscape with far-ranging implications for the capital formation and risk transfer. They include algorithm-based trading, 'smart' contracts, Distributed Ledger Technology," he said.

Giancarlo also addressed other emerging digital technologies, such big data, automated data analysis, and artificial intelligence, and their impact on trading markets and the financial landscape, in his speech.

He said these technologies bring efficiencies to trade matching, processing, and clearing and settlement when paired with "systems inspired by DLT," adding DLTs standardize and distribute data to market actors and regulators.

“Being a quantitative regulator does not mean replacing human judgment and market intelligence; it means reinforcing it,” Giancarlo said.

He said DLT would support regulators with analyzing data, real-world outcomes, and success in meeting regulatory objectives. “We can also envision the day where rulebooks are digitized, compliance is increasingly automated or built into business operations through smart contracts, and regulatory reporting is satisfied through real-time DLT networks.”

The CFTC’s stance on cryptocurrencies and its underlying technology has historically been positive. In June, at the New York City BFI Summit, CFTC Commissioner Rostin Benham noted that cryptocurrencies were “here to stay.” In May, Giancarlo he told CNBC that, "bitcoin and a lot of its other virtual currency counterparts really have elements of all of the different asset classes, whether they’re meeting payment, whether it’s a long-term asset."

Giancarlo had in September compared cryptocurrency to the internet, which he said had grown because regulators didn't step in rigidly but rather applied a careful, "do no harm" approach.