CFTC Commissioner Urges Creation of Crypto Regulatory Sandbox

CFTC commissioner Caroline Pham said creating a pilot programme will enable the safe exploration of innovations involving crypto, digital assets, and tokenisation.

CFTC (Commodity Futures Trading Commission) commissioner Caroline Pham has proposed the creation of a time-limited pilot programme in the US for regulating crypto and digital assets markets.

“A pilot programme can create a safe framework for emerging technologies and market structures under our existing laws and regulations,” she said, speaking at a Cato Institute event on Thursday (7 September).

Pham pointed to past successes by US regulators in launching pilot programmes. For instance, the CFTC launched pilots in 1995 and 1998 to facilitate trading in new types of products. In both cases, the CFTC ended up with a set of formal rules within a few years.

The SEC (Securities and Exchange Commission) likewise introduced a pilot programme, in response to the 2010 Flash Crash, to establish stock market circuit breakers in phases. Eventually, this led to the adoption of the SEC’s “limit up-limit down” mechanism, also initially on a pilot basis.

“Overall, these pilot programmes were designed to help regulators develop robust frameworks that address emerging trends and challenges effectively. The programmes also fostered a collaborative environment for regulators and market participants to work collectively towards common goals,” Pham said.

She proposes that something similar could be done with the crypto and digital assets sectors, to enable the US to capitalise on the benefits of blockchain technology and develop a “pragmatic approach” to digital assets and tokenisation that ensures the country is globally competitive in these areas.

As a first step, Pham said, the CFTC should call for a roundtable to engage all stakeholders on the design of a successful pilot programme.

The CFTC should then propose and adopt rules establishing a pilot programme for a specific period of time. These rules should cover registration and eligibility requirements, financial resources and other conditions, risk management, products and contract terms, and other requirements including disclosures and reporting, she said.

At the conclusion of the pilot programme, the CFTC should examine the data gathered from the pilot and consider whether there should be a permanent change to its rules.

“This proposal shows us how the CFTC can safely explore innovation while maintaining appropriate protections for our markets,” Pham said.

Pham leads the CFTC’s Global Markets Advisory Committee and was the one who established its subcommittee on digital assets. The CFTC is led by chairman Rostin Behnam, however, who has not taken a friendly posture towards the crypto industry.