CFTC's Giancarlo Provides a New Look, Not Halt, on Regulations

It might not have been the extravagant affair that took place on Inauguration Day, but a similar changing of the guard took place last week at Sefcon VII regarding the Commodity Futures Trading Commission (CFTC). As was the case in Washington, a shift in power, albeit symbolic, occured in a venue hall of the Roosevelt Hotel in New York.

Timothy Massad and J. Christopher Giancarlo both spoke within a few hours of each other at the conference. And while the official announcement of Giancarlo's appointment as acting chairman, taking over the position Massad vacated, wouldn't come until a few days later, the shift of power and ideologies could be felt in both speeches.

To hear more about Massad and Giancarlo's speeches, listen to the lastest Waters Wavelength podcast. 

It's easy to predict that Giancarlo's tenure, however long it may be, will be one of deregulation. That is, after all, a principle of the Republican Party when it comes to the financial markets.

However, comments Giancarlo made specifically regarding how regulators should approach fintechs shows a potentially different outlook. While Giancarlo will certainly look to do things differently than Massad, it's not simply a matter of tearing down everything that was built over the last eight years.

Tightrope Act

Giancarlo outlined five steps that the CFTC, among other regulators, should take to foster innovation among fintechs. You can find all of them here, in the transcription of the speech, but the basic idea was this: Regulators shouldn't stifle innovative technology in its early stages with regulations. Instead, they should work with fintechs to develop the best rules possible to help different technologies grow.

On paper, if you're a fintech, it's exactly what you want to hear from the new head of a governing body in your industry. Heavy regulations can stop the development of young technology in its tracks. The margins are paper-thin to begin with. Additional compliance requirements could make things simply impossible.

That being said, Giancarlo's outlook seems a bit optimistic. While it sounds great to say the Commission is going to get involved with fintechs without impeding their progress, it's a tough line to straddle. A regulator will eventually have to decide whether to get involved or not.

Giancarlo did make some great points. Specifically, I appreciated his ideas around helping fintechs when it comes to dealing with regulations in various jurisdictions, both domestically and abroad. I think this can be a particularly daunting task for new firms. However, when push comes to shove, a regulator's involvement in a space, no matter how small, will have an impact.

Early Involvement

One of Giancarlo's examples of a technology that needs to be allowed to flourish is distributed-ledger technology (DLT). And while I agree DLT is a long way from being fully mature and ready for proper adoption, I'm not sure the right move is for regulators to completely take a step back.

The reason I say that is because DLT has the potential to really disrupt the industry across the board. If that's the case, the regulators need to provide guidance early and often.

While Giancarlo's concept of speaking to various fintechs to get their input before drafting rules sounds great, you have to draw the line somewhere. Every industry group is bound to have a different take about what proper compliance would be, so there is no way to make everyone happy. There is such thing as too many cooks in the kitchen. The industry needs a horse, not a camel.

I see the merit in Giancarlo's point, and agree with him when it comes to most new technologies. Things like artificial intelligence and machine learning should be given the chance to get their legs underneath them and grow. But when it comes to DLT, which could alter the way markets operate, the regulators need to be there much earlier and in a much firmer way.