CFTC Chief Innovation Officer and LabCFTC Director Daniel S. Gorfine reviewed agency efforts to keep pace with changes to markets that are affected by FinTech innovation. Mr. Gorfine stated that rapid-paced innovation, particularly in the areas of distributed ledger technology ("DLT") and virtual currency, is leading to new regulatory challenges.
In testimony before the U.S. House Committee on Agriculture, Mr. Gorfine said that FinTech-related developments have led to adoption of new technologies, disruption of traditional frameworks, and increased complexity of business models. Each of these factors presents new regulatory challenges, and highlights the need to make constant adjustments to remain ahead of emerging risks.
Mr. Gorfine stated that the aim of regulators is to promote innovation and the use of technologies that will benefit the market, while also deterring those who seek to use technology in a malicious manner. He described the work of LabCFTC, an effort intended to both enhance the CFTC's technological capabilities and engage with market participants to ensure that regulatory policy keeps pace with market changes. Mr. Gorfine committed to collaborating effectively with international regulators on best practices for FinTech engagement.
Regarding efforts to explore DLT and digital assets, Mr. Gorfine asserted that the agency is interested in both the private and permissioned ledger networks that can be used by market participants to "improve market infrastructure and in public blockchains that require the use of a virtual currency to incentivize participation in maintaining the ledger system." According to Mr. Gorfine, using virtual currencies can be advantageous, particularly in the efficient transfer of ownership. However, he stated, virtual currencies and tokens are vulnerable to fraud, as bad actors have used the pretext of innovation to engage in fraudulent activities that target the public.
With respect to questions of jurisdiction, the Division of Market Oversight and Division of Clearing and Risk released a joint staff advisory that gives CFTC-registered exchanges and clearinghouses "guidance for listing virtual currency derivative products." Additionally, the CFTC has taken enforcement action against unregistered Bitcoin futures exchanges and collaborated with other regulators. Mr. Gorfine reported that the CFTC is working hand in hand with the SEC to pursue bad actors that traffic in virtual currencies.
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