CFTC Commissioner Christy Goldsmith Romero emphasized the importance of modernizing protection measures in order to safeguard American investors. Speaking at the North American Securities Administrators Association’s annual meeting, she warned of the negative consequences that would arise if the government fails to keep up with technological advancements. Romero stressed the need for regulators to understand the implications of next-generation technology on finance and law, particularly in policy decisions. To spearhead this effort, Romero appointed technology experts in FinTech, responsible artificial intelligence, cryptocurrency, blockchain, and cybersecurity into the CFTC’s Technology Advisory Committee (TAC).
As part of their responsibilities, the TAC experts will work on incorporating Know Your Customer (KYC) and Anti-money Laundering (AML) processes into decentralized finance and crypto investment avenues. They will also focus on promoting responsible artificial intelligence (AI) development. Romero believes that federal regulators are just scratching the surface when it comes to utilizing AI and suggests starting with governance to make significant decisions that impact investors and markets.
In terms of crypto investigations, federal authorities have shifted their focus from solely tracking trade activities to monitoring social media platforms, such as X (formerly Twitter), Reddit, and Facebook. Romero advises the use of various tools, such as tracing funds, analyzing the blockchain, utilizing link analysis, social media monitoring, and data analytic tools to aid in these investigations. According to her, the statements shared on social media platforms can serve as strong evidence of intent and can also be used by regulators to issue warnings about scams and protect investors.
To mitigate the damages caused by financial fraud, Romero proposed the establishment of a National Financial Fraud Registry. This centralized record would include information about crimes and fines related to financial fraud, allowing investors to conduct background checks on companies for ongoing investigations or fines for fraud. Romero initially proposed the creation of this registry in December 2019 and believes that it would serve as a one-stop-platform to help deter financial frauds. She also emphasizes the importance of collaboration between federal and state officials to enhance investor safety.
In April, Romero urged crypto companies to verify the digital identity of their users, arguing that reducing anonymity in crypto could help manage associated risks. She encouraged exchanges and decentralized finance (DeFi) platforms to implement digital identity verification.
The recommendations made by Commissioner Christy Goldsmith Romero highlight the need for regulators to adapt to technological advancements and leverage tools to safeguard investors and combat financial fraud. By incorporating KYC and AML processes, promoting responsible AI development, and utilizing various tools for investigations, regulators can keep up with the evolving landscape of finance and protect vulnerable investors. The proposed National Financial Fraud Registry would provide transparency and serve as a valuable resource for investors to assess the credibility of companies. Overall, Romero calls for collaboration between federal and state officials to ensure the safety of investors in the ever-changing financial landscape.
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