I could not agree more. That is why in FY 2018, the Commission requests additional funds to increase staffing and resources to address financial technology innovation (FinTech). The Commission aims to address three fundamental issues arising from transformations in FinTech: 1) how the CFTC should leverage FinTech innovation to make it a more effective regulator; 2) how FinTech can help the CFTC identify rules and regulations that need to be updated for relevance in digital markets; and 3) the role of the Commission in supporting U.S. FinTech innovation in CFTC regulated markets. With these additional investments, I plan to execute a phased approach that will achieve these three objectives.
So much of our world today, from information to music to manufacturing to transportation to commerce, and even farming, has undergone a digital transformation. It should be no surprise to anyone that our capital, commodity and futures markets are going through the same digital transformation. The electronification of markets over the past 30 to 40 years and the advent of exponential growth in digital technologies have altered trading, markets and the entire financial landscape with far-ranging implications for capital formation and risk transfer.
Other breaking digital innovations present equal regulatory challenges. These innovations include “big data” capability to enable more sophisticated data analysis and interpretation; artificial intelligence to guide highly dynamic trade execution; “smart” contracts that value themselves and calculate payments in real-time; behavioral biometrics that can detect and combat online fraud; and distributed ledger technology, more commonly known as blockchain, that will challenge orthodoxies that are foundational to today’s financial market infrastructure.
The pace of investment in these technologies, and in FinTech more broadly, has accelerated in recent years. According to one measure, investment has increased at a cumulative annual growth rate of more than 45 percent from 2011 to 2016. We are seeing a powerful convergence, as the costs of launching new ventures and applying new technologies have dropped enormously, while the speed and scalability with which they can be brought to market have increased dramatically.
The world is changing. Our parents’ financial markets are gone. The 21st century digital transformation is well underway, and the digital technology genie will not go back in the bottle. 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.
Effective Use of Resources
Just as I did in the private sector, I will strive as a government official to maximize how limited resources are used. Earlier this year, I notified you of actions we took to streamline and centralize business management functions from the mission delivery divisions to administrative services, a change that will produce long-term savings. In addition, we realigned portions of the surveillance staff under the enforcement division and refocused a team on developing improved market intelligence. Each of these actions leverages existing processes and increases the efficiency and effectiveness of the Commission’s core functions. Moreover, these actions will allow us to better manage our resources while maintaining, but not increasing, our Division of Enforcement’s legal resources.
The Commission has also worked to improve its administration of its leases. CFTC entered into a memorandum of understanding (MOU) with the General Services Administration (GSA) to administer all future CFTC leases. In addition, the CFTC cleared the lease accounting issues highlighted in the FY 2015 financial statements audit, received an unmodified, or “clean,” opinion on its FY 2016 financial statements and earned the certificate of excellence in accountability reporting from the Association of Government Accountants.
In FY 2018, I have plans to review additional opportunities to streamline operations and further maximize the effective use of our resources. The Commission’s organizational structure must evolve to support the changing times. These types of organizational reviews are critical to ensure that resources and staff are devoted to the most important priorities in the CFTC’s mission to oversee the nation’s derivatives markets.
The U.S. derivatives markets should be neither the most regulated nor the least regulated of the world—but the best regulated. This quest for superior regulatory oversight and unswerving enforcement of our laws motivates the work of the hundreds of talented men and women who serve their country at the CFTC. Only with such a commitment can all Americans experience the economic benefits that risk-transfer markets afford. This budget request ensures that the CFTC can meet such a standard for the American people. The FY 2018 budget submitted by the Commission reflects the true needs of a policy setting and civil law enforcement agency that has the duty to ensure the derivatives markets operate effectively. This budget will give the Commission the resources it needs to put in place and oversee responsible regulations that allow for innovation and enable our markets to remain competitive and safe at home and abroad.