CFTC Chairman Advocates For Flexibility In Fintech Regulations
Commodities and Futures Trading Commission Chairman Heath Tarbert advocated for a principles-based approach to regulating the fintech industry — including blockchain and cryptocurrencies — in a paper published on Monday, June 15.
Tarbert is widely regarded as a supporter of the crypto community. In March he came out in support of the CFTC’s interpretive guidance on actual delivery of cryptocurrencies which provided greater regulatory clarity for the crypto market.
“This action also reflects the CFTC’s growing expertise in this space as well as my commitment to continued U.S. fintech leadership and providing our market participants with clarity,” Tarbert said in a statement about the decision.
In his recent paper, Tarbert gives a comprehensive overview of principles-based versus rules-based approaches while emphasizing that adopting a more loose regulatory structure is essential to supporting innovation in the fintech space.
A principles-based approach is guided by key objectives and values, while a rules-based approach gives strict ordinances. He added that for a principles-based approach to be effective it must be enforced.
“It is my view that the United States must lead the world in this technology, and applying overly prescriptive rules could stunt the development of this important market,” Tarbert wrote.
Tarbert argued that a rules-based approach to digital asset regulation may stunt innovation in the sector by bogging the new market down. He outlined that new markets are prone to large changes in structure and product, especially when young. He worries that plying young markets with strict rules would suffocate growth.
This point dovetailed with his argument that a rules-based approach will likely not be able to keep up with ever-advancing technology. Rules for regulating fintech would need to be constantly updated and could overwhelm young companies that do not have the resources to plow through pages of red tape. In an area like fintech which is only 15–20 years old and whose base is startups, that level of burden could be lethal.
“It is my hope that the CFTC’s use of the framework set out in this article will encourage other financial regulators to reflect on when principles-based regulation may achieve superior results than rules-based regimes, and vice versa,” Tarbert wrote in a tweet.
While Tarbet supports a principles-based approach when it comes to fintech regulation, he added that as the CFTC learns more about the industry’s risks more specific rules may be necessary. He highlighted that this will be especially true as retail participation in the space increases. He stated that detailed sales practice and disclosure obligation rules could be necessary, in addition to rules surrounding the custodying of consumer assets.
By Emily Mason
