The chairman of the United States Commodity Futures Trading Commission (CFTC) has called for “principles-based regulation” for cryptocurrencies.
Heath Tarbert, who assumed his post following former Chairman J. Christopher Giancarlo in July 2019, stated that taking such an approach in regulating digital assets would allow a period of development and observation before it may be appropriate to adopt more targeted rules. Tarbert delivered his remarks on crypto regulation in an op-ed published on the CFTC website Nov. 19.
In the statement, Tarbert emphasized that the term “principles-based regulation” does not imply a light-touch approach or deregulation, stating that it is actually “far from it.” The chairman elaborated that such an approach involves moving away from detailed rules to relying more on high-level and “broadly-stated principles” to define standards for regulated firms and products.
“If you make 10,000 regulations, you destroy all respect for the law”
To make his point, Tarbert quoted former British Prime Minister Winston Churchill’s statement, “If you make 10,000 regulations, you destroy all respect for the law.”
According to the chairman, regulators should first fully understand the outcomes and potential risks of digital assets before enforcing their rules. “What we don’t want to do is take a heavy hand and snuff out innovation altogether,” Tarbert argued, explaining:
“Given the rapid pace of innovation and the markets supporting it, taking a principles-based approach to regulating digital assets and other fintech products would permit a period of development and observation. After we fully understand the outcomes and potential risks of digital assets, it may be appropriate to adopt more tailored and targeted rules, or a more balanced combination of principles and rules.”
Willingness to allow innovation should not be confused with fraud tolerance
While expressing a supportive stance to the development of the nascent technology, Tarbert still devoted considerable attention to the risks associated with the industry. “Our willingness to allow innovation to develop should not be confused with a tolerance of fraudulent behavior or a so-called light-touch approach,” the executive stated. According to Tarbert, digital assets face unique operational risks such as fraud and hacks that could lead to theft or losses.
He added that the CFTC is now considering how the basic aspects of principles-based regulation can be applied to crypto exchanges and clearinghouses.
Former CFTC chairman supported a “no harm” approach to crypto
Tarbert’s new pro-industry remarks echo those of his predecessor, former Chairman Giancarlo. In September 2018, Commodity argued that crypto needs a “do no harm” approach from regulators to flourish, comparing the industry with the early days of the Internet.
In late October 2019, the commission granted its fintech research unit LabCFTC status as an independent operating office. Following the elevation, the CFTC’s fintech hub started reporting directly to Tarbert.