DisruptionBanking is in Madrid today, covering the AGM of the International Swaps and Derivatives Association (ISDA). After its CEO Scott O’Malia kicked the event off, the Chairman of the Commodity Futures Trading Commission (CFTC) Rostin Benham took to the stage to outline some of the regulators’ key priorities.
Benham’s address was wide-ranging, reflecting upon the “confluence of unique externalities” which financial markets are currently facing: the impact of the pandemic, monetary and fiscal policy shifts as inflation rises, interest rate increases and geopolitical unrest. Benham also noted the “technological innovation and disruption” that is having a huge impact on both derivatives and underlying commodity markets – and ultimately consumers. Foremost among these are new DeFi markets and increasingly sophisticated crypto markets.
While regulating new, technologically complex markets will inevitably pose a challenge for the CFTC, Benham emphasised that its key mission remains the same. “Our goal is to be resilient and responsive,” Benham said. “And we can best do that by recommitting to transparency and our standards and processes, establishing rules and best practices that are reinforced by clear and firm expectations of compliance. And prioritising participation, to ensure that change happens lawfully.”
As new innovations in crypto and DeFi “require us to assess risk from newer and more novel sources, our ability to adapt swiftly from theory to practice will be tested over and over again,” Benham added. Doing so in such a way that “minimises market disruption” and “maximises opportunity” will also be key. But, while acknowledging the challenges the CFTC will have to face, Benham was keen to emphasise that the regulator has overcome similar issues when faced with technological disruption in the past. The CFTC will be attempting to bring a “familiar approach” to “new frontiers,” Benham said.
Benham was also keen to note that the CFTC is embracing innovative technology itself. The CFTC’s data division is “transforming the agency’s analytics toolkit,” leveraging cloud architecture, artificial intelligence, machine learning and innovative data analytics programmes. He argued that more sophisticated technology allows the agency to produce more consistent and accurate definitions – ultimately meaning better regulatory reports and higher regulatory standards. The CFTC is also using natural language processing to convert reports in different formats into “structured data.” All of this naturally means greater harmonisation and standardisation:
Benham’s address finished with another nod to crypto and DeFi. He noted that one of the CFTC’s “core requirements” it to “promote responsible innovation and fair competition.” This mission is the same, he said, both in the “markets that we regulate, and the entities and individuals who choose to participate.” Benham said that the CFTC’s approach to “new frontiers” will be “guided by our long-standing charge that the American derivative markets remain the most efficient, safest and most productive markets in the world.” Making this true for crypto derivates, too, will be a priority going forward.
On a political level, Benham supported President Biden’s executive order which “represents a significant step towards ensuring greater cooperation and coordination among US agencies” when it comes to devising regulatory policy for digital assets. This order also acknowledges that the “widespread adoption of digital assets presents unique issues.” However, Benham was confident that any fraudulent or criminal activity in crypto markets are already covered by existing “statutory authority.” That said, he wishes “to continue advocating for […] the CFTC to develop a regulatory framework for digital assets.”
How the CFTC navigates the “new frontiers” of digital assets will be crucial for the space going forward. Could we see sophisticated crypto markets brought into the family of efficient, safe and productive markets? Can sound, sensible regulation harness the potential of technological innovation while taming the crypto “wild west?” Benham seems to think that is possible, but we will have to wait and see.
Author: Harry Clynch
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