CFTC Commissioner Plans to Modernize Investor Protection With Technology

CFTC Commissioner Plans to Modernize Investor Protection With Technology – Christy Goldsmith Romero, a Commissioner at the United States Commodity Futures Trading Commission, urged regulators to update their protective measures by harnessing technological advancements. She cautioned that not doing so could harm American investors. 

Speaking at the annual meeting of the North American Securities Administrators Association in San Diego, California, Romero highlighted that the government’s failure to keep up with technology could particularly impact the most vulnerable investors. She added: “As regulators are making policy decisions on next-generation technology, it is critical that we have a foundational understanding of the technology, and its implications for finance and law.”

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At the forefront of this initiative to enhance investor safeguards and regulatory controls, Romero designated specialists in fintech, responsible artificial intelligence, cryptocurrency, blockchain, and cybersecurity to join the Technology Advisory Committee (TAC) of the CFTC. The Commissioner of the CFTC disclosed that the experts on the TAC have been assigned the responsibility of finding methods to integrate Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures into decentralized finance and cryptocurrency investment channels.

Additionally, the TAC has been given the role of advancing responsible artificial intelligence (AI) development. According to Romero: “Federal regulators are just getting started when it comes to AI. A good place to start is governance in making important decisions that impact investors and markets.” Federal investigations into cryptocurrencies have transitioned from primarily tracing trading activities to monitoring social media platforms like X (formerly Twitter), Reddit, and Facebook.

Romero recommended the use of tools to aid such investigations: “Tracing funds, tracing crypto, using the blockchain, using link analysis, using social media, and data analytic tools should all be in a regulators’ tool kit.” The statements (tweets/posts) one shares on social media platforms “can be strong evidence of intent,” Romero added. The same platforms can be used by regulators to issue warnings about scams and protect investors.

In an effort to mitigate the impact of financial fraud, Romero put forward the idea of establishing the National Financial Fraud Registry, which would serve as a centralized repository documenting all financial fraud-related crimes and penalties. This registry would enable investors to conduct background checks to identify any ongoing investigations or fines related to fraud that companies may be facing.

Romero first proposed the creation of this registry in December 2019: “Once established, each federal agency would register its convictions, sentencings, civil fines and resolved enforcement actions. State and local agencies could join to achieve a true national fraud registry.”  Romero envisions that such a unified platform could serve as a deterrent against financial fraud for investors. 

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Concluding her remarks, the CFTC commissioner emphasized that federal and state authorities working together can enhance investor safety. In April, Romero called on crypto firms to implement user identity verification measures, as she believed that reducing anonymity in the crypto space could facilitate better risk management. She added: “It is possible for all crypto companies to distance themselves from mixers and anonymity-enhanced technology, while still appropriately providing financial privacy for customers.”

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