CFTC Commissioner Johnson Suggests Recurring AI Recommendations in DeFi
Kristin Johnson of the Commodity Futures Trading Commission proposed recommendations, including strengthening penalties to address artificial intelligence in financial markets, including decentralized finance.
In a speech delivered at the Sidley Austin and Rutgers Law School Fintech and Blockchain Symposium, Commissioner Johnson explained his concerns about AI and how it applies to DeFi.
““Deploying AI in an ecosystem running on blockchain technology raises new challenges for oversight, risk management, compliance, and even enforcement,” Johnson said Friday.
AI is integrated Enter the financial markets, including brokerage apps, compliance programs, and robo-advisors. In DeFi, AI can be used for automated trading and algorithmic trading. In general, AI has raised concerns from regulators about risks such as manipulation, fraud, bias, and customer protection.
Johnson said one problem with DeFi is that there is no central party separate from traditional markets.
“The first problem is that traditional financial laws and regulations often assume specific organizational or market structures,” Johnson said. “The use of decentralized autonomous organizations and disintermediated market structures by blockchain-based platforms can move away from these assumptions in important ways. Deploying AI in DeFi systems opens up regulatory waters, especially with regard to oversight responsibilities and compliance responsibilities. Compliance with long-standing and important regulations, such as the Bank Secrecy Act, which aims to address money laundering and illicit financial threats to our financial system.”
Johnson’s AI Recommendations
Johnson called on the CFTC to take a principles-based approach to addressing AI issues overall. One of these recommendations includes increasing penalties for those who “intentionally” use AI to engage in fraud, market manipulation or evade rules.
“Malicious actors who use AI to violate our rules must be notified and sufficiently deterred from using AI to engage in fraud, market manipulation, or as a weapon to disrupt market operations or integrity,” Johnson said. added.
Johnson also recommended creating an ‘AI Fraud Enforcement Task Force’ comprised of attorneys and investigators from various offices within the CFTC’s Enforcement Division. She also recommended an interagency task force that would include other regulators, including the Federal Reserve and the Securities and Exchange Commission.
Johnson’s speech comes just days after the CFTC designated: First Chief AI OfficerTed Kaouk and other agencies said,AI day“ Next week we’ll talk about regulators’ approaches to AI.
Is Director Johnson going to the Treasury?
On Thursday, Representative Maxine Waters, a Democrat on the House Financial Services Committee, sent a letter to President Biden urging him to nominate Johnson to be Assistant Secretary of the Treasury for Financial Institutions.
Waters said Johnson brings expertise to the committee on a variety of topics, from data privacy to AI and digital assets.
“As CFTC Commissioner, Commissioner Johnson has made maintaining the integrity of our financial markets a top priority,” Waters said. “She has pressured the Commission to adopt stringent capital, collateral and margin standards. Commissioner Johnson will also lead the CFTC’s artificial intelligence (AI) work and ensure the Commission carefully considers whether existing regulations are fit for purpose or whether new regulations are in place.” We encourage evaluation.”
Commissioner Johnson declined to comment to The Block when asked about the matter.
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