CFTC Commissioner advice to regulators regarding blockchain technology: “Do No Harm”

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CFTC Commissioner Christopher Giancarlo gave a speech at the end of March to the Depository Trust & Clearing Corporation where he compared blockchain technology to the internet.

He created a corollary between no regulatory intervention with the internet and job creation, “increased productivity [..] innovation and consumer choice“.

He suggests that the same approach be adopted with blockchain technology. At present, he considers that blockchain’s development is “at risk of being stymied by disparate and uncertain regulation“.

Commissioner Giancarlo makes the rather bold statement that if Lehman had been using blockchain technology then “regulators could have reacted sooner to [its] deteriorating creditworthiness“. Of interest is access to information after Lehman declared bankruptcy: Commissioner Giancarlo considers that regulators “could have known all of Lehman’s exposures within minutes of the bankruptcy filing” rather than “countless legal actions spanning eight years” to get same information. This statement is quite poignant considering this week’s announcement that Goldman Sachs’ settled a case with the US government for $5.1 billion regarding mis-selling mortgage backed securities prior to financial crisis, some 8 years after the crisis.

Commission Giancarlo sets a path forward for regulation:

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 [Distributed Ledger Technology] investment and innovation. I favor the latter approach.

He suggests that the US 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“.

Giancarlo emphasises the need for coordination at a multilateral level and states that the role of the Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) have “important roles to play” in this regard.

Giancarlo also suggests that regulators review their own regulations to ensure that existing rules do not inhibit DLT development and adoption. The example he gives is recordkeeping requirements which specify what type of technologies can be used. In this regard, Giancarlo suggests that regulators revisit their rules to be “technologically neutral“.