August 10, 2020

Volume X, Number 223

August 10, 2020

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CFTC Launches FinTech Initiative “LabCFTC”

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.

© 2020 Covington & Burling LLPNational Law Review, Volume VII, Number 144

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About this Author

Jason Grimes, corporate lawyer, Covington
Associate

Jason Grimes is an associate in the firm’s financial institutions and futures and derivatives practice groups. He advises clients on a wide range of regulatory matters, including compliance with various state and federal banking laws, and compliance with the Commodity Exchange Act.

Representative Matters

  • Advised a CFTC-registered swap dealer on compliance issues related to trading on swap execution facilities
  • Advised a major financial institution in connection with the treatment of non-deliverable...
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Anne M. Termine, Covington, securities litigation attorney
Of Counsel

Anne Termine is a member of the firm’s Global Futures and Derivatives Practice and leads the Derivatives Enforcement Team. She is also a member of the white collar defense and investigations practice. Ms. Termine advises clients in handling internal investigations and regulatory enforcement inquiries related to the derivatives markets and the cryptocurrency markets.

Prior to joining Covington, Ms. Termine was a Chief Trial Attorney in the U.S. Commodity Futures Trading Commission's (CFTC) Division of Enforcement, where she was responsible for investigating and prosecuting alleged violations of federal laws dealing with commodities, futures, options, swaps, and other derivatives. While in this role, Ms. Termine designed and led the CFTC’s landmark enforcement program involving the manipulation and false reporting of LIBOR, Euribor and TIBOR - critical, international benchmark interest rates. She spearheaded negotiations that resulted in settlements with nine international financial institutions, imposing penalties totaling over $2.8 billion. In managing this massive, global investigation, Ms. Termine was instrumental in developing relationships and coordinating with diverse foreign regulatory and law enforcement agencies throughout Europe and Asia, as well as with divisions of the United States Department of Justice and a coalition of over 40 State Attorneys General. She received the Chairman’s Award for Excellence, the CFTC’s highest award, for her work on and leadership in handling the LIBOR investigations.

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