The U.S. Commodity Futures Trading Commission is looking abroad for ways to enhance innovation in the financial technology sector domestically.
The CFTC announced a landmark partnership Monday with the Financial Conduct Authority, one of the U.K.’s main financial regulators. The two agencies signed a cooperative arrangement that “commits the regulators to collaborating and supporting innovative firms through each other’s financial technology initiatives—LabCFTC and FCA Innovate.”
According to the CFTC’s press release issued Monday, the agreement makes the first “fintech innovation arrangement for the CFTC with a non-U.S. counterpart.” Both the LabCFTC and FCA Innovate are programs that allow fintechs access to regulators so they can keep an open dialogue on the development of relevant legal frameworks.
“The FCA was an inspiration, as well as a hugely helpful resource, as we worked last year to launch LabCFTC,” said Jeff Bandman, former fintech adviser for the CFTC, in an interview.
Bandman, who now does consulting work for fintechs, said it isn’t surprising to hear that U.S. and U.K. regulators have now formalized their working relationship. “Their commitment to invite each other to observe and participate for proof of concepts and innovation competitions for fintech and regtech, those could be very valuable,” Bandman explained.
Daniel Gorfine, LabCFTC’s director, said in an interview Tuesday that the formalization of this trans-Atlantic agreement began in the latter part of 2017.
Through the new partnership, the CFTC and FCA can “refer to each other innovator businesses that seek to operate in or have questions about operating in the other authority’s jurisdiction,” according to the agreement. But it differs from some bilateral agreements in that the entities won’t be automatically authorized to operate in the other jurisdiction.
Gorfine explained that the arrangement between the FCA and CFTC will be largely for information sharing purposes, and did not indicate that the commission has any other international agreements in the works, at least at the moment. “We want to focus on getting this right, but we’re open to exploring other types of arrangements,” he said.
The agreement itself said it is “intended to complement” and “does not create any legally binding obligations, confer any rights or supersede domestic laws or regulations.”
The collaboration connects FCA Innovate, created in October 2014, and LabCFTC, announced in May 2017. The FCA’s Innovation Hub “has supported over 500 businesses and the authorization of 43 businesses,” according to the CFTC’s announcement. To date, LabCFTC said it “has engaged with over 150 entities since its launch last year.”
LabCFTC met in person with at least 110 entities in 2017, including companies like Amazon, Barclays, Coinbase, IBM and S&P Global, through designated office hours for fintechs and individual meetings, according to CFTC records obtained by ALM.
According to attorneys who represent companies in the fintech space, this week’s announcement shows the CFTC is paying attention.
“The approach here is important because the derivatives markets are global in nature and these cross-border initiatives are very important to enhance market structure and avoid fragmentation,” said Stephen Humenik, of counsel at Covington & Burling.
Vincent Basulto, partner at Richards Kibbe & Orbe, acknowledged that the FCA has long been at the “forefront of fostering fintech growth.” He said, “Initiatives such as this demonstrate the CFTC’s continuing commitment to the fintech space and highlight the need for multinational efforts to allow innovative companies to evolve more readily outside of their home markets.”
Basulto believes that if the CFTC and FCA’s agreement is successful, fintech regulators in other countries could engage in similar cooperative agreements. But he thinks it’s unlikely other U.S. regulators besides the CFTC will ink any similar agreements in “the near-term.”
Bandman, the commission’s former fintech adviser, said he does not have inside knowledge on the current situation but predicted that “it’s more likely the CFTC will do bilateral agreements with other jurisdictions before other U.S. regulators enter into this type of arrangement with the FCA.”