CFTC Making Fintech Policy Through Enforcement, Quintenz Says

By Richard Hill

The CFTC has been venturing into making policy about financial technology through enforcement actions rather than traditional rulemaking, Commissioner Brian Quintenz said Oct. 19.

“From a public-policy perspective, I think we should be providing rules before we should be enforcing the lack of rules,” he said at a Georgetown University Fintech Week gathering. Quintenz, a commissioner since August, told Bloomberg Law after his remarks that he was referring to a settled 2016 enforcement action in which the agency sanctioned Bitfinex, a digital token market, for failing to deliver bitcoins within a required time frame, even though the agency didn’t have a clear policy as to when delivery of a virtual commodity occurs.

Under the Commodity Exchange Act, if a seller delivers a physical commodity such as wheat within 28 days of the purchase, it doesn’t have to register as a futures broker with the Commodity Futures Trading Commission. Virtual commodities such as bitcoin, which are transferred digitally, open up new questions as to when delivery to a buyer actually occurs. In the Bitfinex case, the CFTC said that because the unregistered Hong Kong-based exchange didn’t “deliver” the bitcoins within 28 days, it was offering illegal, off-exchange, retail futures contracts.In the past, the CFTC has been criticized for what market participants call “backdoor rulemaking”—rulemaking through enforcement or the no-action process—because it denies them the opportunity to weigh in on new policies through administrative notice and comment procedures. Quintenz could be in a position to curtail the practice going forward, both as one of three Republican commissioners and sponsor of the agency’s Technology Advisory Committee, which advises the commission on the appropriate legislative and regulatory response to increasing use of technology in the markets.

At the Georgetown gathering, Quintenz said he hopes to have a meeting of the committee by the end of the year. Under his sponsorship, the TAC will focus on the modern trading environment, cybersecurity, distributed ledger technology such as blockchain, and interacting with fintech innovators. Speaking alongside Quintenz at the event, Securities and Exchange Commissioner Kara Stein said her agency “basically has to be out there on the edge with technology, embracing it.” She added later in her remarks, “instead of being disruptive, let’s surf the wave with everyone else.”

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