That’s according to J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), who issued the bold proclamation in remarks at a gathering of government technology executives in Washington, D.C. Wednesday morning.
But while the blockchain industry has been encouraging regulators and government agencies to embrace the technology for years, this acknowledgment might have more oomph behind it. For one, unique to this statement was the size and caliber of the audience receiving it – in attendance was a group of roughly 270 leaders from over 40 U.S. government agencies.
“Distributed ledger and blockchain technologies … are going to challenge orthodoxies that are foundational to our financial infrastructure,” Giancarlo said.
“Everything we do has been digitized. The one thing that has not yet been digitized is regulation. We’re still very much an analog regulator of digital markets.”
And most importantly, Giancarlo stressed that it is imperative that U.S. regulatory structures catch up with the fast-moving digital economy.
Elsewhere in the talk, Giancarlo argued that government bodies must go beyond just understanding blockchain by finding ways to utilize the technology in an agency or regulatory setting.
“Whether it’s the promise of blockchain-enabled digital identities, improved regulatory reporting and surveillance, greater efficiency in clearing and settlement processes, more transparent flow of information – these innovations hold promise in benefiting the American public,” he said.
One “perfect example,” Giancarlo went on, would be using a distributed ledger system to implement the rule set put forth by the Dodd-Frank financial reform law. Passed in 2010, the legislation requires financial institutions to report swap trade info to a central repository.
The intent of the rule is to provide more transparency into a financial institution’s exposure to other banks and better assess systemic risk. But because of technological limitations, that initiative has hit stumbling blocks – issues that Giancarlo believes blockchain could overcome.
But while Giancarlo has mentioned blockchain’s ability to cut through the financial system’s complexity in the past, his statements at the event give a more detailed view of just how the technology could help.
Striking a balance
With all the optimism, Giancarlo did note that the digitization of modern financial markets should be a “delicate balance” of innovation and investor protections.
“Current enthusiasm for certain cryptocurrencies shouldn’t blind investors and regulators to the many risks that are evolving in this space,” he said.
This is particularly notable in that the CFTC recently found certain crypto tokens to be commodities, and earlier this year, granted cryptocurrency derivatives clearinghouse LedgerX a license to trade commodities.
Giancarlo was quick to say, though, that the agency has no intention of overstepping its jurisdiction by defining how all tokens should be classified.
Under Giancarlo’s leadership, the CFTC has brought blockchain into the fold through its blockchain research and development initiative LabCFTC. While this approach means boundary-pushing is inevitable, he says such dynamics are healthy and necessary to modernizing the legacy regulatory framework.
“That makes sense because our rules weren’t designed for this technology. In fact, our rules were designed for markets that don’t exist anymore, and we need to update them.”