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The emergence of this new era of digital economy brought with it enormous benefits as well as disadvantages. To make matters more complicated, the technology – being a rather new innovation – is faced with several challenges and drawbacks: lack of standard governing structures, high price volatility, and a host of others.
These shortcomings have been the major deterrent factor so far, stunting the growth and acceptance of this technology. Therefore, regulatory agencies are forced to constantly devise ways to help keep the market in check and protect investors from being defrauded from their hard-earned cash. However, it has not been an easy task so far, not for the U.S SEC nor the U.S. CFTC or any other international regulatory body concerned with maintaining order in financial markets.
During the 4th Annual DC Blockchain Summit, the Chairman of the U.S. Commodity Futures Trading Commission (CFTC), J. Christopher Giancarlo, addressed his fellow regulators on what he titled the Digital Trinity: the technology, markets, and policy. In the course of the speech, he explained why this new technology is somewhat difficult to regulate compared to past innovations. In addition, he disclosed the technique adopted by the Commission to help tackle these difficulties and urged his colleagues both at the CFTC and other regulatory agencies to ‘‘keep going,’’ innovate with integrity and intelligently, and not to be dismayed.
He started by acknowledging that this era of financial technology innovation is more interesting than any technological advancement before it. Why? Because the development of new technologies and business models is intertwined with existing regulatory frameworks. He went further to point out the potential of blockchain technology and how much difference it could have made if blockchain was around during the U.S. housing bubble burst in 2008.
Still on the topic of the technology and markets, he asserted that distributed ledger technology (DLT), i.e. blockchain, is bound to make a lasting impact in several sectors including banking, securities settlement, trade reporting & analysis, title recording, payments, and cybersecurity.
He added that DLT may further enable financial market participants to manage transactional, operational, and capital complexities seen in the market. He noted that a study estimates that DLT possesses the potential to help financial institutions save up to $20 billion by 2022.
While the technology and market look very promising, policies by regulators is key to the sustenance of this market. Regulating financial market today is proving to be somewhat difficult due to exponential technological change. Unlike what we had in past decades, modern day technologies grow at an exponential rate, making it crucial, and almost compulsory, for regulators to keep up with the pace if they want to gain control of the market. And like I mentioned earlier, this hasn’t been an easy task so far.
The Chairman advised the group, pointing out some of the techniques that the CFTC adopted to stay up-to-date with this enormous change – Adopting an exponential growth mindset, creating an internal FinTech stakeholder, becoming a quantitative regulator, and lastly, embracing market-based solutions.
In conclusion, he urged his fellow regulators to keep fighting, solve problems, get competent advice and follow the law; despite the various challenges, be sure to keep pressing harder, and above all not to be afraid.