DTCC Connection

Apr 18, 2016 • DTCC Connection

CFTC’s Giancarlo Calls for “Do No Harm” Regulatory Approach

By Katharine Paisley

CFTC’s Giancarlo Calls for “Do No Harm” Regulatory Approach
Commissioner J. Christopher Giancarlo of the Commodity Futures Trading Commission

Commissioner J. Christopher Giancarlo of the Commodity Futures Trading Commission highlighted the need for regulators in the U.S. and abroad to “do no harm” when creating regulations concerning distributed ledger technology (DLT) during a special address at the DTCC Blockchain Symposium.

Drawing a comparison to the U.S. regulatory approach towards the development of the Internet in the 1990s, Commissioner Giancarlo encouraged the private sector to lead development of DLT.

“Governments and regulators should avoid undue restrictions, support a predictable, consistent and simple legal environment and respect the “bottom-up” nature of the technology and its development in a global marketplace,” he explained. “This model is well-recognized as the enlightened regulatory underpinning of the Internet that brought about profound changes to human society.”

The principle of “do no harm” was a key theme throughout the Commissioner’s speech, in addition to the need for global coordination to encourage DLT development. “Much like the Internet, U.S. and foreign regulators must coordinate to create a principles-based approach for DLT oversight in order to provide the flexibility, certainty and harmonization necessary for this technology to flourish,” the Commissioner said.

“Regulators have a choice in this regard. I believe we can either follow a regulatory path that burdens the industry with multiple onerous regulatory frameworks or one where we come together and set forth uniform principles in an effort to encourage DLT investment and innovation. I favor the latter approach.”

He highlighted recent efforts by the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO) regarding financial technology innovations, including DLT, and encouraged these international policymaking bodies to play a critical role in coordinating DLT regulation by providing flexible governing principles to accommodate varying national regulators. Without a coordinated approach, Commissioner Giancarlo stressed, firms may be left to navigate a complex regulatory environment in which multiple agencies have their own rule frameworks, issues and concerns.

He also encouraged policymakers to revisit existing regulation to ensure DLT development and implementation is not constrained. He addressed his own agency - the CFTC - and recommended that the Commission review its recordkeeping and other rules. Specifically, the Commissioner called for Recordkeeping Rule 1.31 to be revised to ensure it is “technologically neutral” in order to accommodate DLT and other innovations in recordkeeping.

The Commissioner concluded his remarks by encouraging regulators to demonstrate the same forethought and restraint that was shown during the Internet development in the mid-1990s. He called on the CFTC, in addition to other policy makers and regulatory counterparts globally, to repeat that broad-minded approach.

View Commissioner Giancarlo’s prepared remarks here.

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