Smart Contracts - Newly subject of Soft Regulation

CFTC leaves it to the LabCFTC to specify its interpretation of what Smart Contracts are and where it locates challenges and risks being of operational, technical, cybersecurity, fraud and manipulation and governance nature. The LabCFTC is a platform created in May 2017 as part of the CFTC to foster FinTech innovation and serves as a platform to inform the Commission's understanding of emerging technologies and their potential impacts.

Despite a disclaimer on the first page of the primer '... It is not intended to state the official policy or position of the CFTC, or to limit the CFTC’s current or future positions or actions...', it becomes clear that the primer will serve as guideline for the CFTC. There are multiple explicit hints into that direction: 'Existing law and regulation apply equally regardless what form a contract takes. Contracts or constituent parts of contracts that are written in code are subject to otherwise applicable law and regulation… [and] … You should consult competent counsel when considering whether a smart contract may be a product subject to CFTC jurisdiction.' This observation makes Smart Contracts including its underlying Blockchain technology subject to regulation not formally but in form of soft law.

In my opinion this is a positive step as it provides a certain level of predictability of legal decisions for the market players. Further, it respects the current situation of rapid technological development in the DLT space with its disruptive effect onto business models and entire industries with unknown outcome. A legal codification in a cloudy situation as this would be the wrong decision. Yet, leaving market participants and the community without any direction would be equally bad. CFTC seems committed to proactively make a step ahead by issuing this guideline and thereby balances diligently the interest of a clear regulation on one hand side and the interest to leave still enough room for further technologilcal developments and innovation. We observe such approaches by the regulators nowadays in various countries with - to my understanding - positive effects enabling a parallel advancement of technological progress and regulatory framework. As another example from my own country are the ICO guidelines of the Swiss Financial Market Supervisory Authority (FINMA). These guidelines inter alia set out how the regulator intends to apply financial market legislation in handling enquiries from ICO organisers and thereby provide legal clarity to a certain level to the market players without formal codification.

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