On May 17, 2017, the Commodity Futures Trading Commission (“CFTC”) announced the launch of its financial technology (“FinTech”) initiative, LabCFTC. Per the agency, the initiative is designed to “promot[e] responsible FinTech innovation to improve the quality, resiliency, and competitiveness of the markets the CFTC oversees.” According to Acting Chair J. Christopher Giancarlo, LabCFTC is “intended to help us bridge the gap from where we are today to where we need to be: Twenty-First century regulation for 21st century digital markets.” LabCFTC is the latest effort by Acting Chair Giancarlo to implement the vision for the CFTC that he has consistently advocated—a flexible, forward thinking, responsive agency that fosters productive innovation.
LabCFTC involves two primary components. First, GuidePoint will serve as a “point of contact” within the CFTC for FinTech innovators. The purpose is to provide entities engaged in innovative FinTech development both general information and tailored feedback related to operating within the CFTC’s regulatory framework. Second, CFTC 2.0 is intended to benefit the CFTC itself by providing “the agency opportunities to engage with new technologies to discover ideas and technologies that have the potential to improve the effectiveness and efficiency of the agency.” Through CFTC 2.0, the CFTC intends to explore new FinTech possibilities in a variety of ways, including conducting studies of use cases and establishing a secure testing environment. Participation in CFTC 2.0 offers FinTech innovators “an opportunity to refine ideas and demonstrate potential FinTech applications.”
Acting Chair Giancarlo has previously described the CFTC being “stuck in a 20th century time warp.” In that vein, LabCFTC is a positive and necessary initial step towards making the CFTC a more effective regulator of 21st century markets. However, it remains an initial step, and LabCFTC is not as far reaching as other jurisdictions’ regulators have gone in encouraging FinTech innovation. For example, the UK’s Financial Conduct Authority created a concept known as a “Regulatory Sandbox.” This concept allows innovators to conduct tests of new technologies in a live environment, free of some, or all, regulatory requirements. By contrast, LabCFTC is intended to be a point of interaction between the CFTC and innovators, to allow for determination of how regulation impacts developing technology, and to give the CFTC the opportunity to explore developing technology for its own use in advancing its mission. While Acting Chair Giancarlo cited the Regulatory Sandbox approach favorably in a recent speech, LabCFTC is not a Regulatory Sandbox. Indeed, the purpose of GuidePoint is to assist FinTech innovators in complying with the CFTC regulatory structure, not to allow them to work outside of it. In his remarks announcing the launch of LabCFTC, Acting Chair Giancarlo explained that because the CFTC is “very much still on the steep part of the learning curve” with regard to FinTech, it is necessary to “start small.” Nevertheless, LabCFTC represents the most proactive step by a U.S. financial regulator to engage with FinTech innovators to help spur innovation. Acting Chair Giancarlo made clear that the CFTC would “do what we can and build as we go,” indicating that under his leadership the CFTC will continue to find ways to foster FinTech innovation in its markets.