CFTC Commissioner Giancarlo Reiterates Call for "Do-No-Harm" Approach to Blockchain Regulation

In a recent keynote address, CFTC Commissioner J. Christopher Giancarlo emphasized the "enormous implications" of "blockchain" technology for capital and hedging markets that are overseen by the CFTC and other regulators.

Commissioner Giancarlo asserted that data gathered by the CFTC continues not to provide a "complete picture" of swaps trading, and that this failure is due partly to a lack of harmonized global reporting protocols. In addition, he asserted, that it is a "practical impossibility" for a single national regulator to collect data of sufficient quality concerning cleared and uncleared swaps to "recreate a real-time ledger of the highly complex, global swaps trading portfolios of all market participants."

Commissioner Giancarlo emphasized the promising aspects of distributed ledger technology ("DLT"), particularly its ability to "link networks of legal recordkeeping the same way the Internet connects networks of data and information, increasing settlement efficiency and speed, reducing transaction costs and broadening market access." Nonetheless, he cautioned, DLT will "not come without consequences," including "a greatly disruptive impact on the human capital that supports the recordkeeping and transaction processing of contemporary financial markets."

Commissioner Giancarlo suggested that a good approach to apply to DLT development is that of the early Internet: "first, do no harm." That model established the following principles: (i) the Internet progressed through human social interaction; (ii) contractual relations were voluntary and markets were free; and (iii) governments and regulators could not impede the Internet's continuing evolution. He encouraged regulators to impose minimal burdens on DLT:

Once again, the private sector must lead. Regulators must avoid impeding innovation and investment. Instead, they must provide a predictable, consistent and straightforward legal environment. Protracted regulatory uncertainty or an uncoordinated regulatory approach must be avoided, as should rigid application of existing rules designed for a bygone technological era.

Commissioner Giancarlo called on regulators to adopt a flexible, principles-based approach to DLT regulation jointly. He recommended that the CFTC revisit CFTC Rule 1.31 and render it "technologically neutral" in order to accommodate DLT and other innovations that promote efficiency, accuracy and security in recordkeeping.

Commissioner Giancarlo delivered his keynote address at a Cato Institute conference titled "Cryptocurrency: The Policy Challenges of a Decentralized Revolution."