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CFTC Commissioners Consider Regulatory Compliance Issues and Technology Solutions

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Commentary by Bob Zwirb

At the CFTC Technology Advisory Committee ("TAC") meeting, CFTC Commissioner and Committee Chair Brian Quintenz, CFTC Chair Heath P. Tarbert, Commissioner Dawn D. Stump and Commissioner Dan M. Berkovitz considered recommendations for improving regulatory compliance through better integration of technology.

Mr. Quintenz questioned whether:

  • treating stablecoin the same as other similar products would be effective due to its "nascency";

  • distributed ledger technology could be used to meet CFTC record retention obligations;

  • the risks associated with the "modern trading environment" might already be addressed due to current market incentives;

  • an industry survey would be helpful in determining the best practices concerning trading and risk management controls; and

  • the TAC should hold a vote at the next committee meeting on its support of the Financial Services Sector Coordination Council Cybersecurity Profile.

Mr. Tarbert encouraged the CFTC to continue using its "principles-based approach" in striking a balance between rules that protect market integrity and supporting innovation. He said that such an approach provides flexibility for CFTC registrants to try new technology while complying with fundamental regulatory mandates.

In agreement with Mr. Tarbert, Ms. Stump advocated for a "principles-based approach" that will minimize the risks associated with new technology while continuing to foster innovation.

Mr. Berkovitz urged the CFTC to work with FinTech firms and other market participants to create automated solutions that help to fulfill regulatory requirements. Citing the "numerous" swap reporting violation enforcement actions the CFTC announced this week (see previous coverage), Mr. Berkovitz stated that FinTech could lead to greater compliance.


In remarks preceding a meeting about technology, a topic that in most circumstances should not create partisan differences, the Commissioners nevertheless demonstrated a wide range of regulatory philosophy. For example, Mr. Quintenz stated that in his view "many of the risks posed by automated and algorithmic trading are already being addressed through market incentives, including exchanges' and firms' own self-interest to limit a significant operational risk to their businesses." He also opined that the adoption of technological enhancements are made possible "because exchanges and firms have the flexibility and incentives to mitigate evolving risks through an ever-higher set of standards, rather than through prescriptive regulatory requirements which can quickly become obsolete, redundant, or create unintended consequences, and even new risks."

Likewise, Chair Tarbert expressed his view that the best way to achieve a balance between protecting market integrity and fostering innovation "is through a principles-based approach to regulation - a hallmark and unique feature of the CFTC's regulatory regime." His views were echoed by Commissioner Stump, who expressed her "hope that the CFTC will always stay true to its underlying spirit and principles-based regulation."

By contrast, Commissioner Berkovitz favored a more aggressive approach, declaring that the "CFTC can and should play a significant role working with market participants and fintech providers to help them build automated solutions that are effective in fulfilling regulatory requirements" (emphasis added).

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