J. Christopher Giancarlo is Chairman at U.S. Commodity Futures Trading Commission, the agency of the US government that regulates futures and options markets.
This will be the last time I speak to you from the CFTC.
Nevertheless, before I go, I wanted to share some thoughts, which I have been saving. My five years at the Commission have been an immense privilege. In the time that I have served, I have learned a lot about the issues facing America’s farmers, ranchers, producers, energy firms and other users of commodity futures who depend on the CFTC-regulated markets for their risk management needs.
It has also been my honor to work on so many issues close to the hearts and minds of the crypto community, not least of which are: virtual currencies, distributed ledger technology (DLT) and fintech broadly. I am appreciative for the time I had to serve as chairman and especially humbled by the moniker of “Crypto Dad” that I was given by this fantastic community of vibrant, bright, ambitious people.
I look back on my time at the Commission since first being sworn in back in 2014, and I marvel at the swift pace of change in issues facing the agency. When I first joined as a Commissioner, the CFTC was just coming off five intense years of feverishly writing Dodd-Frank rules to reform Wall Street in the wake of the biggest financial crisis in America in more than 70 years.
I could not have predicted at the time that virtual currencies, DLT and fintech would become such a major part of the conversation for our agency. I feel fortunate to have been at the helm during this time to be a voice in government to quiet some of the fears and calls to dismiss or squash this new technology.
I recently identified several factors that are challenging the work of regulators: the extraordinary pace of exponential technological change, the disintermediation of traditional actors and business models, and the need for technological literacy and big data capability.
I said that the CFTC’s response to rapidly changing markets and technological developments, including blockchain technology and cryptocurrencies, is built upon the following four cornerstones:
- Adopting an “exponential growth mindset” that anticipates the rapid pace of technological innovation and the need for an appropriate regulatory response
- Becoming a “quantitative regulator” able to conduct independent market data analysis across different data sources, including decentralized blockchains and networks, without being reliant on self-regulatory organizations and market intermediaries
- Embracing “market-based solutions” to determine the value of technological innovations, as we witnessed with the launch of crypto-asset-based futures products
- Establishing an internal fintech Stakeholder to address the opportunities and challenges that fintech presents and manage the ever-present tension between innovation and regulation.
Pace of change
With this audience, I never needed to make the argument that the 21st-century digital transformation is well underway – you already knew that, because you are the leaders of this change.
Therefore, it comes as no surprise to this audience that, just as our lives are being transformed, so the world’s trading markets are going through the same digital revolution from analog to digital, from human to algorithmic trading and from stand-alone centers to interconnected trading webs. Emerging digital technologies are impacting trading markets and the entire financial landscape with far-ranging implications for capital formation and risk transfer.
It has been a core belief during my tenure as Chairman that in order for the CFTC to remain an effective regulator, it must keep pace with these changes, or our regulations will become outdated and ineffective. I am pleased to say that over the last two years, the CFTC has been no bystander to the digitization of modern markets.
Many of you have already met with LabCFTC, the initiative we launched to put our agency at the forefront of the digital transformation so that we could be more accessible to market innovators, as well as more proactive in our understanding new technologies. Since it was launched two years ago, LabCFTC has had over 250 separate interactions with innovators big and small. It conducts “lab hours” in places where innovators work: from Silicon Valley, California to Silicon Hills, Texas and from the South Bank of London to Singapore Center.
LabCFTC is not a “sandbox.” It does not try to pick winners from losers. Instead, LabCFTC provides us both an internal and external technological focus. Internally, it means explaining technology innovation to agency staff and other regulators and advocating for technology adoption. Externally, that means reaching out and learning about technological change and market evolution, while providing a dedicated liaison to innovators.
I am proud to say that LabCFTC has become a category leader. Every U.S. federal financial regulator has either created or is creating a program similar to it.
In a few more weeks the world will mark the 500th anniversary of the death of Leonardo Da Vinci.
One of the powerful lasting figures of the Renaissance his cross-disciplinary genius gave us art, architecture and invention. Da Vinci was uniquely gifted and positioned in history to be present at a time when people’s thinking around life moved from something that had to be short and brutish toward something that could be enjoyable.
The Renaissance was a time of education and study when people attempted to improve the world through the power of ideas. I do not think I am being too bold when I say that we are in such a time again. A boldness to innovate is at the center of the technology revolutions of big data, DLT and AI.
The combination of these technologies and others still yet unimagined will standardize and distribute data to market participants and regulators while bringing tremendous efficiencies. These technologies will also bring amazing advances to other areas of our world as well, such as international trade, charitable endeavors, health care, social services and more.
Protecting Free Markets
I believe we are at a tipping point, where innovation will help us rise to meet our greatest challenges.
As we consider potential solutions to these great challenges, I think it’s important to view them through the prism of an enduring ideal, which is the value proposition of free market capitalism.
The proposition is that broad and sustained prosperity generally occurs wherever in the world there are open and competitive markets, free of political interference, combined with free enterprise, personal choice, voluntary exchange and legal protection of person and property. Free markets and innovation are natural partners in this respect.
Under free market capitalism, well-regulated and well-ordered trading activity is considered a forum of human self-expression and economic advancement. Freedom to act in the marketplace is a part of freedom itself. Billions of consumers, following their own self-interests and individual needs, make the decisions that direct the future, not have it directed for them.
For an emerging generation fascinated by crowdsourcing, free capital markets are the ultimate in crowd-sourced decision making. Free market capitalism is not a source of misery and oppression; free market capitalism is the antidote. It is unmatched in alleviating global poverty and unlocking human potential.
We must disabuse ourselves, our peers, and future generations of the notion that there is anything attractive or aspirational about political control of markets and human enterprise. Everywhere it has been tried, it has been a fraud and a failure. It crushes human liberty and society. It steals power from individuals and families and gives it to government and government elites. It enables abuse by a select few who exercise unbridled power over many.
For innovators, controlled economies are dream destroyers. Free markets should be the natural choice of today’s innovators, who today are striving to build bright and better futures.
I personally hope that we can renew faith in free markets for ourselves and our children. We must not be intimidated, but be confident. With the proper balance of sound policy, regulatory oversight, private sector innovation and a little bit of courage, new technologies and global trading methodologies will lead our markets to evolve in responsible ways, and continue to grow the economy and create a future of untethered aspiration, a future where creativity and economic expression is a social good in its own right, a source of human growth and advancement.
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