Fintech Regulation Needs More Principles, Not More Rules
Heath P. Tarbert
These are exciting times for our derivatives markets. From blockchain to digital assets, innovative financial technologies are changing the way derivatives markets work.
The Commodity Futures Trading Commission (CFTC) has an important role to play in determining how these new products and technologies evolve. Our mission is to promote the integrity, resilience, and vibrancy of derivatives markets through sound regulation. The trick with digital assets is to foster the development of exciting new products while mitigating potential risks.
We must remember that how we regulate is just as important as what we regulate. That’s why a principles-based approach is the best way to govern this emerging market.
Principles-based regulation involves moving away from detailed, prescriptive rules and relying more on high-level, broadly-stated principles to set standards for regulated firms and products. Companies will then be responsible for finding the most efficient way of satisfying those standards. Such an approach affords greater flexibility to the tech sector. It will also enable the CFTC to stay ahead of the curve by reacting more quickly to changes in technology and the marketplace.
A more principles-based approach can help reduce the need for volumes of regulations that seek to dictate every aspect of a firm’s behavior. As Winston Churchill put it, “If you make 10,000 regulations, you destroy all respect for the law.” Yet Titles 12 and 17 of the U.S. Code of Federal Regulations—which together cover banking, securities, and derivatives regulation—now total over 13,000 pages.