SPEECHES & TESTIMONY

Opening Statement of Commissioner Dan M. Berkovitz Before the CFTC Technology Advisory Committee Meeting

October 3, 2019

 

Today the TAC will address a number of advanced issues regarding cryptocurrencies, distributed ledger and cybersecurity.  I look forward to hearing from the panels on these important topics.

 

I would like to take this opportunity to briefly discuss another technology topic: using infrastructure technology to make regulatory compliance more effective and efficient.

 

Ten years ago, the G20 leaders met in Pittsburgh and agreed on policies for reforming the global financial system.[1]  Regulators and market participants have accomplished a great deal in the interim implementing new regulatory systems resulting in a safer, more robust financial system.  However, we can improve on our accomplishments and I believe technology will be an important driver in our efforts. 

 

Compliance with the new regulations has not been perfect.  Just this week the Commission announced numerous swap reporting violation enforcement actions.  Aggregate penalties for swap reporting violations are now in the tens of millions of dollars (over $30 million) and counting.  This does not include the millions of dollars spent on lawyers and consultants to address these violations, many of which could have been avoided with better technology solutions.

 

It is my belief that fintech solutions that digitize and automate swap transactions and life cycle events[2] will lead to compliance that is both more complete and more cost-effective. 

 

The benefits of automation are realized when repetitive processes are standardized, digitized and automated.  Consistency will reduce errors and human input improving the level of compliance over millions of swaps.  In addition, integrating compliance features into the transaction infrastructure will increase compliance rates and the public benefits of regulation are more likely to be realized. While much of the substantial cost savings from digitization, automation, and standardization will relate to transaction costs generally,[3] savings in compliance costs can also be expected.

 

The CFTC can and should play a significant role working with market participants and fintech providers to help them build automated solutions that are effective in fulfilling regulatory requirements.  To the extent feasible, the CFTC should also be more mindful of the role of technology in compliance, and take further steps to integrate technology considerations into its approach to regulation. 

 

Engaging with fintech developers and market participants on integrating compliance into technology solutions should be a routine part of the CFTC’s work.  If we can do this successfully, the CFTC will have helped the industry achieve more effective and efficient compliance.  That’s a win-win for the CFTC and the derivatives industry.  

 

I look forward to working with my fellow Commissioners, CFTC staff, and market participants in facilitating greater compliance using technology.

 

[1] See G20, Leaders’ Statement: The Pittsburgh Summit, at 9 (Sept. 24-25, 2009), https://www.treasury.gov/resource-center/international/g7-g20/Documents/pittsburgh_summit_leaders _statement_250909.pdf.

[2] For example, reporting, margin calculations, record keeping, portfolio reconciliation, and other activities related to transacting in, and the life cycle of, swaps.

[3] See Deloitte Consulting LLP, Future of Post Trade – Shifting the Cost Curve (2019), https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/future-of-post-trade.pdf; and Luke Clancy, Patchy Response to ISDA’s Back Office of the Future, RISK.NET (Mar. 28, 2019), https://www.risk.net/risk-management/6512226/patchy-response-to-isdas-back-office-of-the-future.