From Analog to Digital Regulation - CFTC Acting Chairman Christopher Giancarlo
Jo Ann Barefoot
Today’s program is a very special one -- a conversation about regulatory innovation, with the very innovative acting Chairman of the Commodities Futures Trading Commission, Christopher Giancarlo.
As regular listeners know, I’ve spent many years in and around Washington where there is a deeply entrenched belief that regulations, and regulators, simply can’t change very much. Regulators are generally, by both nature and design, deliberate, and cautious, and risk-averse. That’s exactly how they’re supposed to be. The slowness of regulatory change can be frustrating, but I think most would agree that, broadly speaking, it’s been better to err on the side of carefulness than boldness, or inventiveness, when taking regulatory actions that will ripple through big swaths of economy and often force change on whole industries and, often, millions of customers.
Today, though, the tilt toward slow and careful under stress in finance, because the world that our regulators oversee is changing too fast for the old system to work well. Our familiar regulatory models -- stable, steady, solidly-rooted -- are being bombarded by technology that is knocking them off their axes. These technology trends, which are much bigger than finance, are developing so fast, and are so powerful, that they are moving us toward a tipping over, into a new world. And in that new world, we’ll face a new paradigm -- namely, that if our regulators are going to be risk-averse, they will have to address not only the dangers of changing, but also the rising dangers of not changing. Technology is growing exponentially, pulling finance along with it, and we’re still trying to regulate it with brains and institutions hard-wired for linear change. We will increasingly face the danger of getting things wrong -- very wrong -- due to falling behind.
Fortunately, a growing group of regulatory leaders, in the United States and other countries, see this shift and are taking on its challenge. One of them is Christopher Giancarlo. Last summer, he and I spoke at the same conference in New York and happened to sit together at lunch, where he began talking about technology and innovation in ways I’d never heard before from a financial regulator. At the time, he was a commissioner at the CFTC -- he’d been named to that role by President Obama and confirmed unanimously by the Senate. This year, President Trump appointed him Acting Chairman and has now nominated him to be the Chairman going forward. Senate action is expected soon on that -- it may well be that, by the time this show is posted, he’ll be confirmed as the Commission’s chairman.
This spring, he launched an initiative that’s called LabCFTC. Its goal to focus and build the Commission’s extensive work in fintech and regtech innovation. As he explains in our conversation, the Lab will pursue a wide range of activities, from guiding innovators about how to work with regulatory requirements, to participating in research, to building stronger collaboration among financial agencies.
I knew it would be fascinating to have Chairman Giancarlo as a guest on Barefoot Innovation, but I wasn’t prepared for the full vision that he laid out in our discussion. I think this is the single most thought-provoking and eloquent case I’ve ever heard from a senior official about why and how regulators, of all kinds, absolutely have to change.
Remember...the CFTC plays an enormous role today in overseeing financial markets. Its mandate was expanded after the financial crisis, far beyond its traditional focus on commodities. It now oversees the derivatives markets and works to reduce risks to the economy associated with the futures and swaps markets -- areas where, as he explains, technology is rapidly changing everything.
I know you’ll enjoy hearing the Chairman’s far-ranging insights, from the historical reasons why payments are cleared in three days to his eye-opening experience visiting a modern-day, high-tech family farm.
More for our listeners
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And watch for upcoming podcasts. These include a special series I recorded from the floor of the ABA’s annual Regulatory Compliance Conference, including one with Gene Ludwig and Alistair Renee of IBM’s Watson Financial on how artificial intelligence and machine learning will transform compliance. We’ll also have a provocative discussion with John Ryan of the Conference of State Bank Supervisors; will hear from Sanjay Jain, who helped build India’s revolutionary “tech stack” project to capture customer identity on more than a billion people; and last -- but not least -- we’ll have breakfast in London with the great Brett King.