The US Commodity Futures Trading Commission (CFTC) has launched LabCFTC, a new initiative aimed at promoting responsible FinTech innovation to improve the quality, resiliency and competitiveness of the markets the CFTC oversees, according to the agency.
Located in New York, LabCFTC will also look to accelerate CFTC engagement with FinTech and RegTech solutions that may enable the CFTC to carry out its mission responsibilities more effectively and efficiently. The initiative was approved by a unanimous vote of the Commission.
“Simply put, LabCFTC is intended to help us bridge the gap from where we are today to where we need to be: 21st century regulation for today’s digital markets,” says CFTC Acting Chairman Christopher Giancarlo. “The purpose of LabCFTC is twofold: The first is to provide greater regulatory certainly that encourages market-enhancing FinTech innovation to improve the quality, resiliency and competitiveness of our markets. The second is to identify and utilise emerging technologies that can enable the CFTC to carry out its mission more effectively and efficiently in the new digital world.”
FinTech is increasingly having an impact on financial markets as new technologies such as cloud computing, algorithmic trading, distributed ledgers, artificial intelligence and machine learning continue to evolve. In a release issued today, the CFTC cited this impact on financial markets, and potentially on the agency itself, as the reason for the launch of LabCFTC.
“The pace of technological change in financial services is relatively unparalleled in history. In fact, overall financial technology venture capital funding grew 48% since 2011 and lending and payments related categories account for 74% of venture funding since 2006,” says CFTC Commissioner Sharon Bowen.
She adds: “Regulators need to understand this change and how it may affect the markets we regulate. The futures and swaps markets are rooted in the last century, and we now oversee trading that occurs almost exclusively on screens where transactions happen faster than the blink of an eye. In light of this historical technological change, we must be prepared to change how we conduct our oversight and stand ready to adjust our rules in order to ensure the same level of fair competition and customer protection that the American public depends on now.”
LabCFTC includes two core components. The first, “GuidePoint”, is meant to help innovators engage with the CFTC. The second, “CFTC 2.0” will guide the agency in engaging with them.
Guidepoint provides a direct point of contact for FinTech innovators to engage with the CFTC, learn about the CFTC’s regulatory framework and obtain feedback on the implementation of innovative technology ideas for the market.
The initiative goes live immediately, it already has a webpage on the CFTC website and will soon have a dedicated office suite at CFTC’s offices in lower Manhattan, where firms can schedule a visit and interact with the LabCFTC team.
Speaking before the New York FinTech Innovation Lab in New York, Ginacarlo comments: “In some cases we anticipate that innovation may present situations that fall within the spirit, but not the letter, of our rules. GuidePoint will thus be a program that helps us detect ‘analog rules lost in a digital world’. These may require us to consider offering proportional or flexible relief, using regulatory tools already available to the Commission and its staff.
“To be clear, LabCFTC itself will not have independent authority or decision-making power. GuidePoint can help innovators navigate the process to present requests for regulatory action, including no-action letters, interpretations or guidance, to appropriate CFTC staff for review. And where an inquiry we receive is ‘out of scope’ for example, involving an area that is overseen by a different regulator, we will try to point them in the right direction. The objective of GuidePoint is simple: help FinTech innovators engage with the CFTC and receive timely and meaningful feedback,” says Giancarlo.
CFTC 2.0, meanwhile, is supposed to support the CFTC’s stated goal of deploying emerging technology to keep pace with the markets that oversees and, as Giancarlo puts it, “transform our agency into a 21st century digital regulator”.
As part of the CFTC 2.0 initiative, the Commission will establish an internal FinTech/RegTech innovation lab to try and better understand new technologies and to identify potentially useful regulatory applications for them.
Giving one example, Giancarlo says that the CFTC might collaborate with other authorities on leading development of best practices to support the development of “regulator nodes” on distributed ledgers, or experiment with collecting or distributing existing CFTC reports through blockchain technology.
He added that the Commission will also look at how LabCFTC could establish FinTech innovation competitions under the America Competes Act18.
“Such competitions could provide innovators the opportunity to demonstrate solutions to challenges that enhance the public’s understanding – and our own – of the capabilities of emerging technologies that might apply in areas that relate to our agency’s important missions,” says Giancarlo.
Concluding his remarks at the event, Giancarlo singled out Jeff Bandman, FinTech advisor at the CFTC, for particular praise.
“I must acknowledge the extraordinary work of Jeff and his LabCFTC team, the previous FinTech staff working group and others to make today’s launch possible. I am grateful to Jeff, in particular, for his fine work as the architect of LabCFTC,” says Giancarlo.
Bandman will be speaking at Forex Network New York next week about how FinTech developments are likely to shape the financial services industry going forward.