Thursday, March 31, 2016

CFTC Commissioner Urges a Regulatory ‘Do No Harm’ Approach to Blockchain Technology

By Jacquelyn Lumb

In remarks at to the Depository Trust & Clearing Corporation 2016 Blockchain Symposium, CFTC Commissioner J. Christopher Giancarlo talked about the importance of taking a “first, do no harm” approach to the emerging distributed ledger technology, known as DLT or blockchain. This technology has the potential to revolutionize the world of finance, in his view, and should be allowed to develop without the imposition of multiple stifling regulations. Giancarlo called for international regulatory coordination with respect to DLT, and the adoption of a principles-based approach, but added that each regulatory agency can take steps now to ensure that their rules do not inhibit DLT development and adoption.

Emerging technology. Giancarlo explained that DLT has the potential to link networks of legal recordkeeping similar to the way the Internet connects networks of data and information. It could increase settlement efficiency and speed, reduce transaction costs, and increase market access. Giancarlo said the potential applications of this technology may benefit market participants, consumers, and governments.

Rather than burden the industry with multiple onerous regulatory frameworks, Giancarlo called for an approach that was taken with respect to the Internet, which he referred to as a “do no harm” regulatory framework. This approach allows the private sector to take the lead and requires that regulators avoid impeding innovation and investment.

Revisit CFTC rules. As for the CFTC, he said one step it can take is a review of Rule 1.31, which requires that all books and records be kept in their original form or native file formats. The rule also requires that certain records be stored in micrographic media or electronic storage media and other related conditions. Giancarlo called on the CFTC to revisit the rule to make it technologically neutral so that it can accommodate DLT and other innovations that promote efficiency, accuracy, and security in recordkeeping.

He said the CFTC also should examine, and if necessary revise, other rules that may inhibit DLT innovation. He urged other regulators to do the same and examine their recordkeeping and other rules. Regulators must show the same forethought and restraint they exhibited when the Internet was being built, he said. If U.S. regulators and their foreign counterparts develop a “do no harm” framework, it may launch a new era of innovation that benefits the markets and the people they serve, he advised.