Caroline Pham: CFTC’s focus on foundational principles will enhance market integrity, why collaboration with SEC is essential, and the importance of a positive regulatory posture for crypto innovation | Empire

Acting Chairman Caroline D. Pham leads the U.S. Commodity Futures Trading Commission (CFTC). She previously served as global head of swap dealer and Volcker compliance at Citi. Pham launched the CFTC’s 12-month Crypto Sprint, achieving milestones like tokenized collateral guidance and listed spot crypto trading on CFTC-registered exchanges.

Key Takeaways

• The CFTC is focusing on returning to foundational principles to enhance market oversight.
• Emphasis is placed on ensuring financial markets serve the economy through price discovery and risk mitigation.
• Regulatory efforts should prioritize market integrity over sensational headlines.
• A positive regulatory posture is crucial for fostering innovation in the crypto space.
• Misconceptions about blockchain technology being inherently bad due to fraud are misguided.
• The division of responsibilities between the CFTC and SEC should be straightforward and collaborative.
• Pragmatic solutions should take precedence over regulatory turf wars.
• U.S. securities and futures markets are considered the global gold standard for capital efficiency.
• The CFTC aims to implement digital asset regulations within 12 to 18 months.
• The CFTC’s crypto sprint is a key initiative for integrating digital assets into the regulatory framework.
• Stablecoins are expected to be integrated as collateral in financial markets soon.
• A technology-neutral regulatory framework is crucial for collateral management.

Returning to foundational principles at the CFTC

• The CFTC needs to return to its foundational principles to effectively oversee markets.

  — Acting Chairman Pham

• The CFTC’s mission is to ensure markets are well-functioning and protect market integrity.
• Historical context is essential to understand the CFTC’s foundational mission.

• The CFTC has always been about a mission that is to ensure that our markets are well functioning and that we’re protecting market integrity.

  — Acting Chairman Pham

• Regulatory priorities should focus on preventing fraud, abuse, and manipulation.
• A strategic viewpoint on regulatory priorities can significantly influence market operations.

• It’s time for the CFTC to get back to basics.

  — Acting Chairman Pham

• Understanding the CFTC’s historical operations is crucial for effective market oversight.

The CFTC’s role in financial markets

• The CFTC oversees various financial markets, ensuring they facilitate price discovery and risk mitigation.

• We oversee everything that is basically not a security and we’re talking about the intersection of the real economy and financial markets.

  — Acting Chairman Pham

• The CFTC’s regulatory scope includes rates, FX, and credit markets.

• It’s really looking at this 700,000,000,000,000 notional financial market that we oversee that’s global by design by nature.

  — Acting Chairman Pham

• The role of the CFTC is significant in maintaining market functionality.
• Regulation should focus on well-functioning markets rather than chasing headlines.

• The government is not there to pick winners or losers.

  — Acting Chairman Pham

• A focus on market integrity over sensationalism is crucial for effective regulation.

Encouraging innovation in the crypto space

• A positive regulatory posture is crucial for innovation in the crypto space.

• What gets me more excited is the posture of the administration and the regulators.

  — Acting Chairman Pham

• Encouraging the use of technology in a safe manner is essential for growth.

• We want you to use this technology, we encourage it, and we’re gonna do it in a safe and sound manner.

  — Acting Chairman Pham

• Misconceptions about blockchain technology being inherently bad due to fraud are misguided.

• A technology is not good or bad, it’s just technology.

  — Acting Chairman Pham

• A nuanced understanding of blockchain’s potential is necessary for informed regulation.

• Bad actors who commit fraud in the crypto space don’t mean the blockchain technology is bad.

  — Acting Chairman Pham

CFTC and SEC collaboration

• The division of responsibilities between the CFTC and SEC should not be overthought.

• One of the other things about getting back to basics is it’s actually also very much getting back to regular order.

  — Acting Chairman Pham

• The CFTC and SEC have historically worked together to address regulatory challenges.

• It’s always been a very healthy and very respectful working relationship.

  — Acting Chairman Pham

• Collaboration is key to finding practical solutions for new financial products.

• They sat down and they hashed it out.

  — Acting Chairman Pham

• Understanding past interactions between the CFTC and SEC is crucial for future collaboration.
• A focus on collaboration over confusion is essential for effective regulation.

Pragmatic regulatory solutions

• The focus should be on pragmatic solutions rather than regulatory turf wars.

• People trying to sort of protect their maybe their regulatory moats.

  — Acting Chairman Pham

• A successful regulatory approach should enhance liquidity and capital efficiency.

• Thinking about what is the best most optimal market structure to foster liquidity formation and capital efficiency.

  — Acting Chairman Pham

• Collaboration in regulatory approaches fosters innovation and market efficiency.
• Understanding the regulatory landscape is crucial for effective market oversight.
• “A blank piece of paper” approach can lead to optimal market structures.
• Regulatory turf wars can distract from achieving pragmatic solutions.

U.S. markets as the gold standard

• The U.S. securities and futures markets are the global gold standard for capital efficiency.

• The futures markets that the CFTC oversees are also the gold standard and the best in class.

  — Acting Chairman Pham

• The CFTC aims to implement digital asset regulations within 12 to 18 months.

• We’re gonna do it.

  — Acting Chairman Pham

• The CFTC’s crypto sprint is a 12-month initiative to implement recommendations.

• The first phase of the CFTC’s crypto sprint was a comment period.

  — Acting Chairman Pham

• Understanding the global context of capital markets is crucial for effective regulation.
• The U.S. markets serve as a model for global crypto regulation.

Integrating stablecoins into financial markets

• The U.S. regulatory framework is designed to be technology neutral regarding collateral management.

• Our rules just say treasury money market funds are eligible collateral.

  — Acting Chairman Pham

• Stablecoins are expected to be live as collateral in cleared markets soon.

• Stablecoins will probably be live as collateral in cleared markets in the first or second quarter of next year.

  — Acting Chairman Pham

• The killer app for stablecoins is collateral management due to efficiencies.

• I think the killer app for stablecoins is collateral management.

  — Acting Chairman Pham

• A technology-neutral regulatory approach is crucial for financial market innovation.
• Understanding the role of stablecoins in enhancing operational efficiencies is essential.

Addressing inefficiencies in collateral management

• Only about 15% of eligible collateral is currently being used due to inefficiencies.

• Only about 15% of eligible collateral ends up being used.

  — Acting Chairman Pham

• Collateral management is a significant opportunity in the financial sector.

• Probably one of the biggest low hanging fruits opportunities out there today.

  — Acting Chairman Pham

• Tokenized collateral needs a framework for proper risk assessment and pricing.

• We need to make sure that we create frameworks and standards.

  — Acting Chairman Pham

• Blockchain technology could address significant inefficiencies in collateral management.
• Understanding the complexities of collateral pricing is crucial for effective regulation.

Evaluating stablecoins and regulatory support

• Not all stablecoins are created equally, understanding their frameworks is crucial.

• Understanding the frameworks understanding where the deposits are being held.

  — Acting Chairman Pham

• Having a regulator that encourages safe innovation in tokenized collateral is essential.

• Having a regulator that is saying like it should happen we encourage it to happen.

  — Acting Chairman Pham

• The evaluation of collateral risk should incorporate traditional financial standards.

• Just because it’s a new technology doesn’t mean that we forget all of the lessons.

  — Acting Chairman Pham

• Due diligence in evaluating stablecoins is critical for investors and regulators.
• Regulatory support is necessary for the growth of the crypto industry.

Impact of U.S. regulatory posture on crypto

• The regulatory posture of the U.S. has a significant chilling effect on the crypto industry.

• If publicly you’re saying that crypto or blockchain is bad then yeah people doing things that are illegal is very bad for business.

  — Acting Chairman Pham

• Changing the narrative around crypto from regulators is essential for fostering a positive business environment.

• Businesses and companies want to do the right thing because that’s good for business.

  — Acting Chairman Pham

• Regulatory perception can significantly impact business viability in the crypto industry.
• A supportive regulatory environment is necessary for the success of crypto businesses.
• Understanding the impact of regulatory messaging is crucial for business operations.
• Positive messaging from regulators can foster industry growth.

U.S. regulatory clarity and global influence

• The regulatory clarity in the U.S. is attracting crypto companies to expand in New York.

• Now we’re gonna come to New York because the talent is in New York.

  — Acting Chairman Pham

• Dodd-Frank created regulatory moats that hindered new entrants due to high compliance costs.

• Dodd Frank created these massive regulatory moats.

  — Acting Chairman Pham

• The lack of a harmonized cross-border framework has led to market fragmentation.

• It really fractured pools of liquidity.

  — Acting Chairman Pham

• U.S. regulatory practices have a significant influence on international markets.
• Understanding the competitive landscape for crypto companies is crucial for effective regulation.

Facilitating international market access

• The CFTC is facilitating faster registration for non-US entities to operate in the US market.

• It’s a much faster path to get recognized and begin legally operating.

  — Acting Chairman Pham

• There is a unique opportunity to integrate regulated markets onto blockchain technology.

• Take these regulated markets and put them on chain.

  — Acting Chairman Pham

• Streamlining the registration process for foreign entities is crucial for market integration.
• Blockchain integration in regulated markets indicates a significant trend in the industry.
• Understanding the regulatory landscape is essential for international market access.
• Facilitating international market access can enhance global market integration.

U.S. as a model for global crypto regulation

• The U.S. market serves as a model for global crypto regulation.

• Everybody’s trying to catch up to what is being done in the US.

  — Acting Chairman Pham

• The integration of crypto into traditional financial systems will be politically untenable to reverse.

• You have to have adoption so that you can’t take it away.

  — Acting Chairman Pham

• The U.S. repo market is increasingly utilizing blockchain technology.

• Getting close to doing 10% of the US repo market on chain.

  — Acting Chairman Pham

• Understanding the influence of U.S. regulatory practices is crucial for international markets.
• Widespread adoption of crypto will make it difficult to roll back regulations.