The new Acting Chair of the CFTC outlines a strategic shift towards a "back to basics" approach, emphasizing a principles-based regulatory framework to foster responsible innovation and fair competition in rapidly evolving markets, particularly digital assets.
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well first and foremost congratulations
on your new role as acting chair it's
very exciting uh in your confirmation
statement you said and I'm going to read
this for btim to make sure I get it
right we must refocus and change
Direction with new leadership to fulfill
our statutory mandate to promote
responsible Innovation and Fair
competition in our markets what is that
actually look like for you and
specifically how do you balance
fostering Innovation while ensuring Fair
competition and Market Integrity in a
rapidly evolving space like digital
assets well thank you so much for having
me here it's great uh to be here at this
conference especially because I was just
saying backstage I think this is the
first time as acting chairman that I've
P publicly spoken about our digital
assets agenda so it's pretty exciting to
be here and thanks so much for having me
I think um the key asp aspect of what I
wanted to come right out and Signal um
when I became acting chairman is that it
is a change we are going to be making a
change from the policies of the last few
years and key to that is what I have
almost been repeating as a mantra the
entire time that I've been a
commissioner and now as acting chairman
which is it's Back to Basics the cftc
has a pretty uh simple mandate we are
here to ensure that we have
well-functioning markets that are deep
and liquid and enable our Market
participants to hedge their risks we uh
oversee risk transfer markets as former
chairman Chris John Carlo has said many
times hello and
um key though in that in the ability of
the commodity derivatives markets to
enable that risk transfer is the fact
that we are Innovative a lot of times
people uh talk about some of the changes
that are going on in our markets whether
it's digital assets or prediction
markets which is something El I've
spoken a lot about and say you know this
type of change and having uh new asset
classes or new underlyings is not that
disimilar to when the cftc uh back in
the 70s um expanded the scope of our
markets not just from physical
Commodities like wheat or grain oil or
gold but to financial Commodities you
know the thought of having interest
rates or indices as Commodities back
then was very revolutionary and now if
you think about it those are the largest
uh markets that we oversee when you
think at the 400 trillion notional uh
derives markets so to me I think it's
just a Natural Evolution although it is
sort of another Cambrian explosion of uh
how our markets are changing to fit uh
today's day and age but otherwise it's
Back to Basics it's fairly simple we
have a principles-based regulatory
framework uh what that means and the
benefits of having a principles based
regulatory framework is that we are more
able to quickly uh adapt and anticipate
to new and emerging risks or
developments technological innovations
and so on in our market so I don't know
that it really changes so much what we
do but what I do think is key to um what
new leadership and a new change in
direction is is how we approach the
issues of the day and so one of the
things that I talked about during one of
my first uh senior staff meetings as
acting chairman was that uh to me I'm
going to be guided by the three M first
is mission is this our mission two
markets does this serve the markets and
three mindset are we approaching this
with the right mindset do we have an
open mindset do we have a growth mindset
so I think being Guided by these three
Ms that's how we're going to ensure that
we're balancing uh promoting responsible
Innovation while also ensuring Fair
competition Market integrity and
protecting our Market
participants awesome you recently
announced a series of round taes that
you'd like to do on the evolving trends
like Market structure conflicts of
interest and more particularly digital
assets uh given the wide variety of
stakeholders in this room and
potentially watching a live stream right
now in the digital assd industry that
are present here today can you just
elaborate on what type of key insights
you would like to gather from these
discussions and are there any specific
issues that you are particularly Keen to
learn about or
address the other thing that's been fun
about my 3 weeks I think as acting
chairman is I have uh told people that
if you want to know what I'm going to be
doing we'll just look at everything I've
been saying for the last two years and
if I said it that means I'm going to go
and try to do it now and roundtables and
public engagement in an open and
transparent way is Again part of getting
back to basics that's what we here as
public servants are meant to do we are
here to engage with the public we are
here to hear from the public because
that's one of the core foundations of
being in a democratic country like the
United States it's a participatory
democracy and so that's why it's so
important to me that we have roundtables
as structured open and transparent
forums for the public to come and share
their views with us to have input into
the policymaking process because it's
inconceivable to have a government where
we're going to mandate the laws and the
rules that you have to live by every day
and yet you have no voice or no say in
the matter to me that's just un American
so the round tables are very key to that
and the key thing with these round taes
again being part of the government is
that there are rules by which we make
policy um part of that is that we need
to have a rational basis for what it is
that we do um particularly when we are
changing our policies or or embarking
upon a new area of policy and part of
having a rational basis for what we do
means that we are having input from
experts we have data we have studies uh
all of those things are part and parcel
of having a rational basis for why we do
things so a round table is very
important because our uh participants in
this round table and just members of the
public we'll be able to submit comments
again we will hear from experts we will
hear from stakeholders such as uh
industry leaders uh technology providers
uh those who are actually building and
participating and shaping these markets
as well as from other interested
stakeholders like public interest groups
so it's designed to bring everybody to
have a seat at the table
and to be able to contribute that's
really the key thing is because I feel
that many of the policies of the past
several years have not in fact been data
driven they've not been um taking an
empirical look at uh the benefits of and
the risks but the benefits in particular
of uh technological developments like
blockchain fully agree one of the key
themes of the day is that we may be at a
pivotal moment in the evolution of
onchain markets
uh as you know Ando is building out a
platform to facilitate more issuance of
tokenized assets and really bringing
more institutions on chain uh but one
thing that will need to happen in
addition to the technology and
infrastructure is just more regulatory
Clarity right um and I know You' said
this before but can you share your
thoughts on how the cftc plans to
support greater institutional
participation in nonchain markets and
are there any specific things in the
short term that you would plan to address
address
so looking at having uh institutional
markets and digital assets is something
that I've been very particularly looking
at since about 201 uh 16 or 2017 and I
think we probably began talking about it
when we were both at our previous firms
possibly in 2018 or 2019 so it's been a
long time coming and when you think
about the cftc's uh role overseeing
again the derivatives markets this is
where I think about what maybe very well
be the killer app for blockchain
technology in tokenized financial
markets which is collateral management
collateral management is something that
underpins the entire J's markets it's
trillions and trillions and trillions of
dollars um being able to enable uh new
Innovations like 247 trading um being
able to reduce settlement clearing um
and other operational risk all of those
things are some of the benefits that
have long been written about uh with
blockchain technology and so one of the
key initiatives I wanted to do in my
role as a commissioner was to sponsor
the global markets advisory committee
which has a digital asset markets
subcommittee I've been so proud to be
able to sponsor their efforts because in
the last uh just over a year actually
they've put forward a number of key
recommendations which we will now be
looking to implement at the cfdc under
my leadership as acting chairman one of
those is a us uh digital asset taxonomy
this is really key because if you're
going to be doing something you all need
to be on the same page and talking about
the same things and importantly it will
help to bridge uh our us markets with
the rest of the world who has been ahead
of us right we have been left behind in
this because we've been um kind of in a
a food fight or something in the United
States over over this technology where
it's become this battle between good and
evil instead of just thinking that it's
technology technology is not good or
evil so that's very important Bridging
the Gap between the US and the rest of
the world being a useful tool for us
policym to begin to understand what do
we mean when we talk about digital
assets and the different use cases for
digital assets including uh use cases in
uh again tokenized financial markets
tokenized uh financial instruments um
Financial activity utilizing blockchain
technology the other very important
recommendation um that was one of the
most recent GMAC recommendations is
around the use of DT to enable uh to
tokenized non-cash Collateral again um
one of the the very simple use cases of
that is stable coins as collateral uh
for duros transactions um being able to
post it as a margin whether it's initial
margin or or um a variation margin in
our markets so that's something that I
would actually like to pursue
operationalizing again um consistent
with direction that we receive from the
White House and the um on our efforts
with the president's working group on
digital asset markets we recently had uh
one of our first kickoff calls on that
and working closely together of course
with with the US Department of the
treasury and with our fellow Regulators
um over at the SEC but looking at how to
stand up um as I've called for a digital
asset markets pilot program to explore
the use of tokenized non-cash collateral
and that could really be um looking at
our existing rules and regulations and
seeing if there's any um comfort that we
may need to provide uh whether it's
through um a letter or through some
other uh key parameters or factors or criteria
criteria
to be utilizing this in our markets but
I think that's a measure of regulatory
certainty that we can provide in a pilot
program that will then be a bridge to
being able to use this in our markets um
you know on an everyday going forward
basis but after it's been carefully
studied after we've received the data to
support that this actually minimizes
risks um it's gone through a cost
benefit analysis and so I do think that
we will be looking at sort of the
eligibility criteria for people to
participate in the effort and then we
will be collecting the data and then
publishing a report so more to come but
I think that's going to be the most
impactful first thing that the cfdc can
be doing on our own um in pursuing the
president's agenda and then like I said
working together with all of our
counterparts on the executive order for
digital asset markets yeah I I love that
because I'd love to just um dive a
little bit deeper on that recommendation
on the use of tokenized non-cash
collateral because obviously for a
company like Ando Finance is the largest
issuer of tokenized treasuries on public
blockchains that was kind of a big deal
so can you just elaborate a little bit
in your own words why you think that
recommendation is so impactful and what
it will cause if you think about
why why use blockchain technology in
institutional markets like our
institutional markets are fantastic they
are great they work there is again you
know 400 trillion notional in
derivatives in our markets um every day
there are trillions and trillions of
dollars in transactions whether it's in
the FX markets the rates markets um
credit markets commodity markets you
name it Equity derives markets all of
the pipes and plumbing of the financial
system work great today but of course
could it be better are there ways that
we could reduce Opex for firms are there
ways that we can reduce capex for firms
one of the things about Dodd Frank and I
think one of the the the most important
or impactful
um reforms of Dodd Frank that most
fundamentally reshaped Market structure
was actually not title 7 which was the
deros regulation but it actually was the
capital and margin requirements those
are the things that really shaped um who
the key Market participants were it
really shifted from being much more of a
dealer Market uh to being um more
diverse as far as Market participants
you have alternative liquidity providers
who now take up a very large portion of
our Market um provision and so since
dealers have been constrained with their
balance sheets they're able to
intermediate less and less and so when
you have this Global hunt for scarce
Capital when you have to look at every
dollar of the activity that you're doing
and figure out how much Capital are you
going to allocate towards that activity
that's where Innovations like blockchain
technology being able to be more Capital
efficient being able to reduce um the
time for example that you've got your
collateral locked up in settlement
processes being able to reduce
settlement fails being able to um
mitigate all of those different risks
and become more efficient those are real
dollars and cents that are adding up and
it's a a
truly massive opportunity and so that's
why I think it's important to look at
institutional markets and to look at
something I mean honestly this is
actually a pretty boring topic
collateral management is not the kind of
thing that gets people very excited um
many of these are sort of middle and
back office type functions but it's
critically important to our financial
markets obviously haven't come from a
bank that was the pipes and plumbing and
is the pipes and plumbing of the entire
world it's something that we saw um and
all banks see as a massive opportunity
well for what it's worth the people at
onto Finance get very excited about
tokenized collateral so at least that's
one group I see some head nods in the audience
audience
so um all right shifting gears a little
bit um I'd love to just get your take is
there anything right now happening in
digital assets or the broader
tokenization space that you are
personally very excited about and is
there anything maybe happening that
could even help your role in and or
support the mission of the cftc to
ensure fair and orderly
markets there's many exciting things
happening but I think um maybe the best
way to address this is to talk about
some of the near-term deliverables that
we have and and how we are approaching
all of these issues and then kind of
talk about some of the perhaps um next
steps after we sort of do these
near-term deliverables so in the
president's um executive order uh we do
have a couple near-term deliverables so
uh within 30 days we need to report upon
all of our rules regulations orders and
other things that we've done as agency
action that impacts digital assets we
are currently working on um completing
that inventory across the entire agency
um I've also asked the digital asset
Market subcommittee of my GMAC to also
work on doing that um as well so that
way we can cross check and and basically
um make sure that we've got a good list
um that's been scrubbed and is
comprehensive that's one of the first uh
deliverables that we'll be doing um
after that of course there's another uh
60-day report and then there's the
180-day report so we are working on
pulling all of this together in order to
be able to meet those deliverables and
to be able to contribute to the
president's working group we are also
looking at bringing on board um
hopefully a couple senior advisers uh
crypto Market structure experts that
will be incredibly helpful to us um I
have many former colleagues that have
been uh you know Wonderful resources so
looking forward to having some of these
sort of temporary senior advisers that
can help us with the crypto Market
structure uh besides that um like I said
in order to do initiatives like my
tokenization pilot we also will be
looking to be um deepening our bench of
talent and bringing in Industry experts
who have um actually built Solutions or
have led initiatives to deliver
Solutions those are going to be key
skill sets that we need at the agency
because we don't really have that uh in
the public sector it's not to the same
um level of course as you have in the
private sector uh so that's going to be
something very important so there's just
a lot of things that we need to do at
the agency to enable um this openness uh
and this ability to truly understand and
get in front of and create a
forward-looking regulatory framework or
structure for digital asset activities
or for generally just new technology in
our markets uh besides doing tokenized
collateral again so interesting one of
the top priorities I think um besides
that there's a lot of other interesting
things um that we could be looking at uh
some of the other work streams that my
digital aset Market subcommittee has
been working on have been utility tokens
for example I actually think one of the
things that may bring the most
regulatory Clarity the fastest is to
identify um to Define what is a utility
token and that it is not a
security that actually I think would
bring a lot of clarity to a broad swath
of the marketplace and it's the approach
that many other jurisdictions have have
taken as well um one of the other and
and actually at the last GMAC meeting
there was a presentation from the
utility tokens workstream which is led
by Chris Perkins who's the president of
coin fund and a former colleague of M at
city and um they've done a tremendous
amount of work on thinking through a
regulatory framework for utility tokens
and how does uh that fit within the
cfc's jurisdiction the other work stream
which um has been led by a couple other
of our uh subcommittee members including
peran boring who's the um CEO of the uh
digital Chamber of Commerce is around
nfts I believe that nfts are not a
security they are things um and the cftc
has broad jurisdiction over Commodities
that are you know Goods articles um
Services interests rights etc etc so I
think that's another area where um if I
take a step back and think about what is
the opportunity in web 3 what is the
opportunity in creating um either new uh
wholly native digital assets or digital
assets that are a representation of
something else so whether it's the the
right to use something to transfer
something or to use something whether
that is uh tangible or intangible a lot
of that is actually commercial activity
and so that brings me back to my first
sort of threshold question which is is
this a commercial activity or is it a
financial activity because if it's a
commercial activity it's actually not
going to be regulated by Financial
Regulators we have other um we have
state regul ulation in the United States
we have the Federal Trade Commission at
the federal level and a lot of what's
very exciting for how our lives are
going to change on an everyday basis in
a in a more digital uh world and in
Virtual Worlds is actually in the
commercial space think about uh the way
nfts are being used in sports or
entertainment uh in fashion in media all
of that is very interesting that's all
being led by corporates probably former
clients of yours I'm sure and former
clients of mine and so that's something
where I think we really don't want to
inhibit that growth in those sectors
that are not the financial sector it's
actually other sectors of the
economy awesome well as time is flying
by I want to make sure that we do touch
on defi right there is growing
prominence I would say of decentralized
Finance I don't know what the exact
number is of capital in defi right now
but it is growing so there's been some
discussion on how that really should be
regulated uh the previous administration
I believe it's fair to say tried to
clamp down on defi in a wide variety of
different ways that caused quite the
Uproar in the defi Community um what do
you believe is the cftc's role in
regulating Defi and what would what do
you think a good regulatory framework
for defi would look like I think a lot
of the issues of the past several years
is based on a fundamental
misunderstanding of Defi and then of
course the appropriate way to regulate defi
defi
uh when I first became a commissioner
and again based on the work that I've
been doing um at city and in the private
sector uh I think maybe two or three
months after I became a commissioner I
gave a keynote at nasdaq's technology of
the future conference where I outlined
10 fundamentals for responsible digital
asset markets and none of those was like
this is Defi and this is what we need to
do about defi actually what I talked
about besides Common Sense things like
combating illicit Finance um and
insuring risk management and uh um
anti-f fraud uh measures is that we
really need to appropriately use
activities based regulation versus
entity-based regulation and I think the
challenge is that with defi people have
been trying to apply an entities based
regulatory approach to it but there's
not actually entities are there in defi
not like that actually what's more
appropriate is an activities based
regulatory framework when you when you
look at defi one of the first examples I
used um in thinking about it is is
Napster so for those of you who remember
Napster who were perhaps in college as I
was at the time um with Napster it's a
peer-to-peer sharing Network how are you
supposed to go and ask every college
student to register as something when
they're on Napster that doesn't seem to
make much sense but you shouldn't be
using um the internet to do illegal
things right and that's actually the
approach that they took with um file
sharing and uh with the intellectual
property and copyright and other issues
theft of intellectual property so why
would it be any different for any other
internet activity it isn't that's how we
regulate the internet we regulate the
activities that people do on the
internet and that's how I think about
defi I love it as a um closing thought
it seems like right now there
is more or less a historical burst of
energy around the topic of digital
assets so in your opinion how does the
industry kind of a avoid fumbling the
historic moment in squander the promise
that the next two to four years could
really have um do you have any parting
thoughts or wisdom that you would share
with the people here
today approaching things from a
realistic and dare I say an adult
perspective anybody who thinks that
there's going to be something that involves
involves
money um and doesn't have any rules or
regulations is that's not realistic
that's that's pretty ridiculous right um
so for those who think that there's
going to be money involved and there's
going to be no regulations whatsoever
that's not realistic so I think just
come to something with a reasonable
approach that is something that makes
sense that isn't something where people
immediately can poke a million holes in
and then you lose credibility because I
think um what has been most challenging
for the digital assets industry is
actually a credibility gap there have
been a lot of very bad actors um um and
there it's been appropriate to take very
strong um actions to um pursue and to go
after fraud but fraud is fraud no matter
what you can't lie cheat or steal no
matter what you're doing whether it's
digital assets or other things and so
the problem is that those frauders
people who are lying cheating and
stealing people's money that has given
the industry unfortunately a um a bit of
a bad rap and so I think the industry
has done such a good job um particularly
in the last uh year plus to rehabilitate
um the image and to make clear the
difference between somebody who's just
lying and stealing versus people who are
really trying to build something
Innovative that's going to bring net net
a great deal of good to um to society uh
to the economy so that's been really
good progress so let's not backslide on
that amazing progress being made to
close the credibility gap so keep the
moment them going and be realistic love
it I want to really thank you for taking
the time to join us on this stage today
it was incredibly interesting to hear
your perspective on these questions and
I am personally very excited to see what
all the things that you can do as the
acting chair thank you so much it's a
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