I welcome the CFTC’s Technology Advisory Committee.  Technology can be transformative for people and markets if designed and deployed responsibly.  Debate on issues of emerging technology for markets is enhanced by the Commission’s engagement with the broad and diverse group of technology experts who serve on the TAC.  As the TAC sponsor, I am grateful for your service, and the leadership of TAC Chair Carole House, Vice Chair Ari Redbord, and chairs of the TAC Subcommittees.  I also want to thank CFTC staff Tony Biagioli who is the designated federal officer (DFO) of TAC, assistant DFOs Drew Rodgers and Lauren Bennett, Scott Lee, Yevgeny Shrago, and Zach Coplan in my office, and others in the CFTC who keep TAC running and helped organized today’s event.

Responsible Artificial Intelligence

In every meeting, TAC has examined responsible artificial intelligence.  AI has long been used in financial services and markets.  The latest buzz is over the potential for generative AI.  Generative AI could be a consequential tool to aid humans in breakthroughs in areas of big problems like healthcare, climate change, cybersecurity, and fraud detection, just to name a few.

The potential impact of generative AI on financial markets cannot be fully known.  But that does not mean that regulators cannot start to consider guardrails to ensure that AI innovation is responsible.

As a foundational matter, regulators should consider how best to establish accountability on the humans and organizations designing and deploying AI in financial markets.  Governance requirements on those making decisions to deploy AI in financial markets are important to consider, and can protect against someone blindly deploying a tool or model with an outcome that causes harm.

Accountability requires transparency, rather than a black box.  Transparency in the design and initial deployment of AI systems or AI models is critical, as is the case after the AI system or model is deployed.  It is important for humans to be able to detect possible negative outcomes in deployed AI models or systems before they cause harm.

Given the unique complexity of AI, it is important for regulators to consider implementing best practice standards.  NIST leads with its AI Risk Management Framework, a framework that allows for innovation that is responsible and is designed to ensure the trustworthiness of AI.  I would ask TAC’s Subcommittee on Emerging and Evolving Technology to consider as part of its existing work whether to recommend that the CFTC impose best practices for AI, such as NIST’s RMF, for regulated entities.

TAC will continue to coordinate with the Biden Administration in examining Responsible AI.  We are honored to welcome Elizabeth Kelly, Special Assistant to the President for Economic Policy, White House National Economic Council to speak about the White House Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.  President Biden is setting the United States on a path to lead the world in fostering the promises of AI, while protecting against potential perils, with the EO’s focus on the safety, security, and trustworthiness of AI.

We will also hear from Professor Michael Wellman, Chair of Computer Science & Engineering at the University of Michigan, who earned his PhD in Artificial Intelligence from MIT in 1988, and spent his career as an AI researcher.  Recently, Professor Wellman testified before the Senate Committee on Banking and Housing about the potential use of AI for market manipulation, even if not intended, and what he calls “an AI loophole”—potential gaps in existing regulations that are focused on humans having intent.

Those who place AI into regulated financial services have responsibilities to follow existing laws.  If there are gaps in our existing laws, it is appropriate to consider ways to close those gaps.  Senators Mark Warner (D-VA) and John Kennedy (R-LA) recently introduced a bi-partisan bill that would amend the SEC’s regulatory authority by ensuring accountability, addressing intent, and providing for treble damages.  The CFTC might need comparable authority.  I would urge TAC’s Subcommittee on Emerging and Evolving Technology to take up this issue as part of their ongoing work.

Cyber Resilience

I am very pleased that the Commission proposed its first rule for banks and brokers on cyber resilience.  I had the privilege of leading the development of that rule over the past year.  The Federal government must also promote its own cyber resilience.  Today, we welcome Mitch Herckis, Director for Federal Cybersecurity, Office of the Federal CIO, White House.  His work focuses on a zero trust paradigm, which is no easy feat, but is necessary for cyber resilience.  I look forward to hearing about his work, which is something that TAC’s Subcommittee on Cybersecurity can consider as part of its work.

DeFi

And last but certainly not least, Carole House and Dan Awrey, co-chairs of the Subcommittee on Digital Assets and Blockchain Technology will present the Subcommittee’s draft report on Decentralized Finance.  From the time that I arrived at the CFTC, I have talked about the importance of promoting innovation that is responsible, and studying emerging issues around digital assets to prevent harmful unintended consequences, particularly to retail customers, market integrity and financial stability.  Today’s report is the result of one such study. 

DeFi is more than $50 billion in total locked value.  That’s a lot of customer assets.  I am grateful for Carole and Dan’s leadership and for the subcommittee members’ work to study the promises of DeFi while being realistic about what it is today, as well as the risks.  The Subcommittee sought to present a balanced and straightforward examination of DeFi.  The composition of the Subcommittee with its broad and diverse views helps bring that balance.

I hope that the report will be used by policymakers and regulators as they consider DeFi going forward and also by the industry itself.  I am grateful for the hard work of the Subcommittee to develop findings and recommendations.  Given that DeFi remains at the center of cyber hacks and illicit finance, I am particularly grateful for the recommendations related to anti-money laundering and countering the financing of terrorism.  Today, TAC members will vote on releasing the report.

I really appreciate each of our speakers and TAC members’ willingness to share your technology expertise and viewpoints.  As always, I encourage a broad discussion of a diversity of views, today and going forward.