During the annual convention of the North American Securities Administrators Association in San Diego, California, Commissioner Christy Goldsmith Romero of the United States Commodity Futures Trading Commission (CFTC) sounded the alarm. She urged regulators to take advantage of technological developments to modernize investor protections, highlighting how doing otherwise might have a harmful effect on American investors, particularly the most vulnerable ones.
Romero underlined in her speech the necessity of regulators keeping up with technological advancements. She emphasized how crucial it is for regulators to understand cutting-edge technology and its consequences for finance and the law, especially as they formulate important policy decisions.
Romero voiced concern that regulators can unintentionally expose investors to new risks if they lack a fundamental understanding of technology. She emphasized that regulators must change their strategies as technology continues to disrupt financial markets in order to maintain strong investor protection.
The Role of Technology Advisory Committee (TAC)
To spearhead efforts to enhance investor protection and regulatory frameworks, Romero appointed technology experts in various fields to the CFTC’s Technology Advisory Committee (TAC). These experts include individuals with knowledge in fintech, responsible artificial intelligence, cryptocurrency, blockchain, and cybersecurity.
One of the primary tasks assigned to the TAC experts is to explore ways to incorporate Know Your Customer (KYC) and Anti-Money Laundering (AML) processes into decentralized finance and cryptocurrency investment platforms. This move aims to make these emerging sectors more secure and compliant with regulatory standards.
Thank you @NASAA for a warm welcome. Read here to see my re-proposal for a National Financial Fraud Registry. I proposed this in 2019 as @SIGTARP after conducting hundreds of fraud investigations. https://t.co/mjErLobTmY
— Commissioner Christy Goldsmith Romero (@CFTCcgr) September 12, 2023
Additionally, the TAC has a role in advocating for responsible artificial intelligence (AI) development. Romero highlighted that federal regulators are just beginning to grapple with the challenges and opportunities presented by AI. Ensuring proper governance in AI decision-making processes that affect investors and markets is a key focus.
Related: CFTC Commissioner, Mersinger Dissents from DeFi Enforcement
Shifting Focus to Social Media and Tools for Investigations
Romero acknowledged that federal crypto investigations are shifting from merely tracing trading activities to monitoring social media platforms like Twitter, Reddit, and Facebook. However, she recommended the use of advanced tools to aid these investigations effectively.
These tools encompass tracing funds, crypto tracking via the blockchain, link analysis, social media monitoring, and data analytics. Romero underlined that these tools should be part of regulators’ toolkits for efficient investigations and monitoring of the crypto space.
Furthermore, she pointed out that the content shared on social media platforms, such as tweets or posts, can serve as compelling evidence of intent, which can be crucial in investigations. Regulators can also leverage these platforms to issue warnings about scams and protect investors.
The Proposal for a National Financial Fraud Registry
In her address, Romero proposed the establishment of a National Financial Fraud Registry, a centralized repository containing records of all crimes and fines related to financial fraud. This registry would offer investors a one-stop platform to conduct background checks, ensuring there are no ongoing investigations or fines related to fraud imposed on the companies they engage with.
Romero initially introduced the concept of this registry in December 2019. Federal agencies, as well as state and local entities, would contribute their convictions, sentencings, civil fines, and resolved enforcement actions to create a comprehensive national fraud registry.
She believes that such a registry could serve as a powerful deterrent against financial fraud, empowering investors to make more informed decisions while enhancing overall financial market safety.
In closing, Commissioner Christy Goldsmith Romero emphasized the importance of collaborative efforts between federal and state officials to bolster investor protection. Her call for technological advancements and innovative solutions underscores the evolving nature of financial markets and the need for adaptable regulatory frameworks.
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