U.S. Commodity Futures Trading Commission (CFTC) building. (Photo: Diego M. Radzinschi/NLJ)
A contender to head the Commodity Futures Trading Commission on Friday presented his vision for a “forward-looking” agenda at the agency, including greater U.S. regulatory promotion of financial technology.
J. Christopher Giancarlo, a Republican member of the commodities commission since 2014, said in a speech in London that U.S. regulators must “foster best practices for new trading technologies and harness them for the benefit of market participants and regulators.”
Giancarlo said “distributed ledger technology,” or DLT, which can address how securities and commodities are cleared, offers “promising benefits” for the market and for regulators. Regulators, he insisted, “must take a ‘do no harm’ approach” to promote financial technology, sometimes referred to as fintech.
Although appointed by President Barack Obama, Giancarlo is seen among some defense lawyers as not only the likely acting chairman of the CFTC after Donald Trump takes office but ultimately the Senate-confirmed leader of the agency. The CFTC regulates commodity futures and options markets.
Giancarlo has close ties to Paul Atkins, the former U.S. Securities and Exchange commissioner who’s on the transition team reviewing financial regulatory agencies. And Giancarlo’s regulatory outlook squares with Atkins’ position that Obama administration financial regulations have too tightly squeezed the market.
“Financial regulators must address how to prevent death from a thousand cuts by numerous state, federal and foreign regulators for fintech firms that look to provide services across various financial market regulatory jurisdictions,” Giancarlo said in his speech Friday at International Swaps and Derivatives Association Inc.’s Trade Execution Legal Forum. “Because emerging technology, such as DLT, has the potential to provide many benefits that transcend regulatory boundaries, financial regulators must start with an agreement on general principles in order to avoid stifling innovation.”
Giancarlo recommended financial regulators set up “dedicated, technology savvy teams” to work with fintech companies on how regulatory frameworks should apply to innovative products and service models.
Regulators, he said, should give fintech companies “space to breathe” without fear of fines and enforcement. He pointed to the United Kingdom’s Financial Conduct Authority “regulatory sandbox” as a model. The UK’s independent financial markets regulator launched the program in May as a safe space for fintech companies to test products on limited customers with mitigated regulatory risks.
Critic of Dodd-Frank
Giancarlo has assailed parts of the Dodd-Frank financial reform law, saying “its unceasing implementation are uniquely positioned to ensure U.S. market regulators stay focused on the past.” Financial regulators, Giancarlo said last year, have “very little available bandwidth” to prepare for the next financial crisis.
“In my first year in Washington, I have been struck by how backward-looking much of the discussion is around global financial markets,” Giancarlo said in a speech last year at Harvard Law School. “The Dodd-Frank Act was passed over five years ago, but U.S. market participants and Washington financial regulators must still spend much of their professional time arguing over and addressing its myriad mandates and peculiar prescriptions—regulatory edicts ostensibly designed to prevent a recurrence of the last crisis.”
Dodd-Frank regulations, Giancarlo said in the Harvard speech, “have wiped out small community banks across America’s agriculture landscape.”
Giancarlo graduated from Vanderbilt University Law School in 1984, a year behind Atkins. Atkins and Giancarlo spoke together at Vanderbilt last year on Dodd-Frank and its effect on financial regulation. Between February 2011 and October 2012, Giancarlo testified three times before Congress on the financial overhaul law.
Giancarlo’s remarks in London came one day after Timothy Massad, the Commodity Futures Trading Commission (CFTC) chairman, delivered a legacy speech in Washington that highlighted the agency’s enforcement and regulatory agenda under his watch. Massad praised achievements that were rooted, he said, “predominantly on a bipartisan basis.”
“We worked to keep the focus of regulation on those who create the most risk, and made rules less prescriptive in some areas,” said Massad, a former Cravath, Swaine & Moore partner who has led the agency since June 2014. “And we have worked to strengthen relationships with international regulators and harmonize regulations across borders.”
Giancarlo recently resisted the ability of the CFTC to obtain the source code of trading systems without a subpoena. The provision, he said Friday, “remains a nonstarter.”
Braden Perry, a partner at the firm Kennyhertz Perry in Kansas City, Missouri, who formerly served as a CFTC senior trial attorney, said Giancarlo hasn’t hesitated to dissent from fellow commissioners.
“He’s been more of a pro-industry commissioner as opposed to some of the other commissioners who have pursued with vigor the Dodd-Frank consumer-protection provisions,” Perry said Friday. “You might see some of the rules and regulations that are under consideration or have been already approved be rolled back under Giancarlo’s leadership.”
C. Ryan Barber in Washington contributed to this report.