CFTC Chairman Giancarlo Testifies on Virtual Currency and FinTech

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On July 25, Commodity Futures Trading Commission (“CFTC”) Chairman Giancarlo testified before the House Committee on Agriculture to address the priorities and recent work of the agency.[1] The testimony touched on a number of areas, but focused in significant part on the CFTC’s oversight of virtual currencies and financial technology (“FinTech”). Those portions of the testimony are summarized below.

Chairman Giancarlo described emerging financial technologies as “taking us into a new chapter of economic history” and having a “transformative impact on U.S. capital and derivatives markets.” He mentioned LabCFTC, the CFTC’s dedicated FinTech function, as being the agency’s “focal point” in its efforts to interact directly with FinTech innovators and modernize the CFTC’s regulatory approach. The Chairman suggested that the CFTC needed greater legal authority to “partner and collaborate” with FinTech innovators within a research and testing environment, and also to work more closely with other agencies and governments.

Chairman Giancarlo also provided an overview of various recent consumer education initiatives by the CFTC’s Office of Customer Education and Outreach, which is conducting outreach efforts to educate customers on virtual currencies, including warning vulnerable populations of the risk of fraud.

The testimony touched on CFTC requirements with respect to exchanges, clearing houses, and derivatives clearing organizations that feature Bitcoin futures products, as well as the CFTC’s anti-fraud and manipulation authority over virtual currency derivatives. For example, according to Chairman Giancarlo, exchanges self-certifying new contracts for virtual currency futures products will require the CFTC to invest more in new technologies to support related surveillance and enforcement efforts.

Regarding enforcement, Chairman Giancarlo stated that the CFTC has been particularly assertive in exercising its jurisdiction over virtual currencies and has formed an internal virtual currency enforcement task force. This task force shares information and cooperates with virtual currency experts at the Securities and Exchange Commission (“SEC”). Chairman Giancarlo described a number of examples of recent enforcement actions concerning fraudulent virtual currency schemes.[2]

The testimony emphasized the CFTC’s cooperation with the SEC and other U.S. and foreign regulators with respect to virtual currency policy and jurisdiction considerations. For example, the Chairman noted that the CFTC has been working actively with the U.S. Treasury Department and the Financial Stability Oversight Council through its crypto-currency task force.

In response to a question regarding whether the CFTC could handle the workload if it were given jurisdiction over all facets of cryptocurrency, Chairman Giancarlo stated in his oral testimony that: “We are not traditionally a retail market regulator; that is the SEC’s role. We should take a cautious, incremental approach to cryptocurrency regulation.”

Finally, Chairman Giancarlo highlighted the CFTC Technology Advisory Committee’s focus on: assessing risks associated with algorithmic and automated trading; suggesting self-regulatory policies for trading platforms; distributed ledger technology and associated regulatory applications; and cybersecurity practices and protocols. The Technology Advisory Committee is expected to provide actionable recommendations to the CFTC regarding these areas in the coming months.

[1] Testimony of Chairman J. Christopher Giancarlo before the House Committee on Agriculture, Washington, D.C. (July 25, 2018) (available here).

[2] Specifically, Chairman Giancarlo mentioned the following: (i) Gelfman Blueprint, Inc., involving a bitcoin Ponzi scheme; (ii) My Big Coin Pay Inc., involving commodity fraud and misappropriation in connection with solicitation of customers for a virtual currency known as My Big Coin; (iii) The Entrepreneurs Headquarters Limited, involving a fraudulent scheme to solicit bitcoin from members of the public, in which the defendants misrepresented that customers’ funds would be pooled and invested in certain products including binary options and instead misappropriated the funds; and (iv) Coin Drop Markets, involving fraud and misappropriation in connection with purchases and trading of Bitcoin and Litecoin. A previous DIR posting (available here) addressed the My Big Coin Pay Inc., The Entrepreneurs Headquarters Limited, and Coin Drop Markets enforcement actions.