CFTC Chair Heath Tarbert called for a "predominately principles-based approach" to regulating digital assets and other FinTech products.
In commentary featured in Fortune, Mr. Tarbert stated that relying on principles rather than "detailed, prescriptive rules" will (i) provide for greater flexibility in the tech sector, (ii) facilitate innovation and (iii) help the CFTC "stay ahead of the curve." The latter is of particular importance, according to Mr. Tarbert, due to changes occurring in technology and the marketplace.
Mr. Tarbert clarified that "principles-based regulation" does not mean that the agency is considering "deregulation" or a "light-touch" approach. He stated that the approach is (i) "more efficient and flexible" and (ii) prevents bad actors from exploiting loopholes often found in rules-based regulation.
Mr. Tarbert noted that "core principles have been central to [the CFTC's] evaluation of clearinghouses that would clear deliveries resulting in delivery of Bitcoin." He pointed out that each of the three clearinghouses working with digital assets was able to adopt different methods of handling Bitcoin transfers and addressing risk loss. Mr. Tarbert expressed the hope that by using a principles-based approach, market participants (not regulators) will be able to evaluate which arrangements are commercially viable.
Commentary
Chair Tarbert's call to avoid a prescriptive approach to regulating the emerging market for digital assets is well taken. The same principle should be applied to the CFTC's approach to regulating swaps, which since 2010 has often layered a highly prescriptive set of requirements upon the core principles-based framework of the Commodity Futures Modernization Act. Examples include: the CFTC's proposed Regulation AT, which the Managed Futures Association and the Alternative Investment Management Association characterized as "a very prescriptive, unnecessary, one-size-fits-all regulatory framework"; the CFTC's original trading rules for swaps executed on SEFs, which former Chair Giancarlo described as "overly prescriptive" and "highly over-engineered"; the position limits/aggregation proposal and final rule; and the proposed margin requirements for uncleared swaps; all of which are crafted primarily in a prescriptive, complex fashion that makes compliance a challenge.
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