Thursday, October 05, 2017

Commissioner Quintenz supports tech innovation, but critical of prior administration’s regulatory initiatives

By Brad Rosen, J.D.

CFTC Commissioner Brian Quintenz, in delivering his first major address since being sworn in to the commission in August of this year, announced his strong support to advance and promote innovation in financial marketplaces, but also offered harsh criticism for certain regulatory initiatives set in motion under the prior administration.

Reg AT. In remarks before the Symphony Innovate 2017 conference held in New York City, Quintenz railed against Reg AT (Regulation Automated Trading) noting, “[t]he agency’s process on this rule development was so confused, the regulation is titled Regulation Automated Trading but the entities it would require to register were classified as Algorithmic Trading Persons.” He further described Reg AT as a “lame-duck re-proposal” that reflects “poorly-crafted and flawed public policy.” Additionally, Quintenz described the controversial “source code repository” component of Reg AT as “massively over-reaching and highly concerning” and declared that “proposal is D-E-A-D.”

Role with Technology Advisory Committee. Quintenz will likely play a key role in connection with the commission’s embrace of technological innovation. He has been named as sponsor to the commission’s Technology Advisory Committee which is composed of outside professionals and structured to provide the CFTC with formal guidance on existing or emerging technological advances and associated potential regulatory issues.

Quintenz sees the financial markets and services sectors as now being primed to benefit from advancements made possible by the internet, as well as the exponential growth of computing power. He noted that new types of companies are now expanding into financial services, motivated by confidence in proprietary technological advancements. In order to realize the potential benefits offered by new technologies, Quintenz views two key elements that need to be in place. First, the commission requires leadership which prioritizes a consistent and engaging dialogue with the FinTech community, and secondly, it must fully utilize existing avenues and create new structures to empower those conversations.

LabCFTC. Quintenz noted that the CFTC’s LabCFTC initiative, which was launched in May of this year, as a pathway through which the CFTC can develop and foster dialogue with the FinTech community. LabCFTC is designed to make the CFTC more accessible to FinTech innovators, and serves as a platform to inform the Commission's understanding of emerging technologies and how they square with current rules. Additionally, LabCFTC is an information source for the Commission and the CFTC staff on market-enhancing innovation that may influence policy development. LabCFTC will enable the CFTC to be proactive as FinTech applications continue to develop, and to help identify related regulatory opportunities, challenges, and risks.

Bitcoin. Quintenz noted that prior to his arrival to the CFTC, through successive enforcement cases, determined that Bitcoin is a commodity and that trading in the cryptocurrencies represents trading in a commodity interest. As a result, the commission will be presented with many challenging issues surrounding features unique to cryptocurrencies will need to provide “regulatory consistency with other commodities….as well as regulatory certainty within which a more constructive trading environment may develop.”

Cybersecurity. Quintenz sees Cyberspace as the 21st century battlefield for those wanting to harm our country and threaten our way of life. He believes that recent public and private sector attacks have shown we also need to focus on mitigation and recovery. Moreover, he noted, “[w]e owe it to our registrants, who send us highly sensitive and proprietary information, to make a realistic assessment of our vulnerabilities and ensure that all data submitted is rationalized and completely necessary.”

In his concluding remarks, Quintenz noted that “innovation won’t wait for us,” adding, “[t]he world is changing, and we as regulators must now change. A 21st century economy demands 21st century regulation.” Time will tell what precise form 21st century regulation will take.