Introducing “CFTC 2.0”
The other core component of this initiative is called “CFTC 2.0.” This effort conveys the CFTC’s goal to deploy emerging technology to keep pace with the markets we oversee and transform our agency into a 21st century digital regulator. CFTC 2.0 is designed to strengthen the agency’s understanding of new technologies, and to adopt them in support of our essential mission overseeing derivative markets.
We plan to do this in several ways going forward. We will establish an internal CFTC 2.0 FinTech/RegTech innovation lab to better understand new technologies and to identify potentially useful applications. We will look to explore ways to use FinTech to enhance CFTC functions and duties. For example, we 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.
We also will look to explore 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.
LabCFTC – Additional Components
In addition to GuidePoint and CFTC 2.0, there are a number of other actions we will be taking as well.
Let me mention those briefly.
To heighten FinTech and RegTech engagement, and help all of us at the CFTC to stay abreast of the latest developments, the CFTC is looking to partner in an annual FinTech conference. We welcome the public's ideas for topics and areas of focus. I hope a conference will also serve as a forum for idea sharing that can help spur ongoing FinTech development.
We will also seek to engage with academia at the faculty level, as well as with the next generation of students and budding young entrepreneurs. We are exploring the possibility of hackathons – technology challenges focused on areas of particular relevance or concern to the CFTC in executing its mission. Other organizations have used these to great effect.
We will consult with thought leaders across the FinTech industry to gain the benefit of their insight. Moreover, we will draw upon the support of the CFTC’s Technology Advisory Committee to harness its members’ valuable expertise.
And, building on the outreach work we have already done, we will continue to engage directly with other regulators domestically and internationally to further regulatory interest in FinTech innovation.
Let me give a complimentary shout out to our overseas regulatory colleagues. Many of them have already established their own initiatives to promote innovation, under the rubric of “sandboxes”, “accelerators”, “launchpads” and other names. It has been enormously helpful to learn from them as we seek to adapt their experiences and insights to our own needs and those of our markets. We appreciate their cooperative spirit and willingness to engage in open discussion. And we thank them for their leadership.
In particular I would like to compliment our friends in the United Kingdom – especially, the Financial Conduct Authority (FCA), which had the foresight to launch its “Project Innovate” in 201419, and the Bank of England, who launched its “FinTech Accelerator” just last year20. In only a short period of time, those British efforts have become the gold standard for thoughtful regulatory engagement with emerging technological innovation.
There is something else we have noted in our discussions with other authorities: their programs have started small. Our initiative is no different. We have limited resources. We too will start small, and do our best to work harder and smarter. And when it comes to FinTech, we are very much still on the steep part of the learning curve. So I ask for your patience as we move forward with LabCFTC. We will do what we can, and build as we go. I am hopeful that the initiative grows and bears fruit over time.
Why do this?
As regulators, we know that our rules were mostly written for 20th century analog trading markets – the kind of markets in which Eddie Murphy famously bid up the price of orange juice futures in the movie, “Trading Places.” We also know that those analog markets are long gone – replaced by electronic trading in virtual marketplaces. We also know that our analog rules remain to be updated. What we do not know is which rules are most in need of updating in the face of new emerging technology.
We hope that LabCFTC and its engagement with technology innovators will assist the CFTC in prioritizing efforts to modernize its regulatory mission. It will provide us a market-based priority list for our modernization efforts. As we meet with more and more innovators, we can expect to see patterns emerge – to see which rules come up time and time again as the most problematic, the least able to adapt to evolving technologies. This will help us focus our limited resources much more effectively.
By engaging with FinTech, we will learn where the friction points are between innovation and our regulations. Through LabCFTC, we will be able to put our rules under “the tension of innovation.” This is not only good for markets, innovation, jobs and growth, it is good for us too. It helps us do our jobs better too.
And, let me say this to FinTech Innovators: we have more in common with one another than you may think. Like you, LabCFTC is a start up. Our aspirations are lofty, though our resources are limited. This is a new endeavor for us too, so please be patient as we learn and grow. And I believe we also share a common vision: I am excited about what FinTech innovation can bring to our markets. I am confident that these powerful new technologies will result in much stronger, safer markets that work better for participants.