CFTC seeks feedback on AI use in compliance and market dynamics

The United States Commodity Futures Trading Commission (CFTC) would like to learn more about how regulated entities might use artificial intelligence (AI) in their compliance efforts and other applications.

The agency issued a comment request to enhance staff understanding of AI’s current and potential applications and risks in derivatives markets. Feedback received may impact future CFTC guidance, interpretations, policy statements or regulations.

The CFTC seeks input on AI applications in trading, risk management, compliance, cybersecurity, recordkeeping, data processing, analytics and customer interactions. In compliance, the agency highlighted AI’s potential influence on surveillance, Anti-Money Laundering (AML) and regulatory reporting functions.

Supporting this, the CFTC Chair, Rostin Behnam, said the request for comment (RFC) will “further support the CFTC as we strategically identify the highest priorities and return-on-investment projects with AI use cases internally to optimize our data-driven approach to policy, surveillance, and enforcement.”

Commissioner Kristin N. Johnson Statement on the CFTC RFC on AI: Building a Regulatory Framework for AI in Financial Markets: https://t.co/kdCyDO36mF

— CFTC (@CFTC) January 25, 2024

The CFTC announced that the RFC complements the directives the Biden Administration established for the safe, secure and trustworthy development of artificial intelligence. The deadline for comments is April 24, 2024.

Regarding the CFTC’s RFC, Commissioner Kristin Johnson said the call for feedback indicates an ongoing conversation involving various departments of the agency, including the Market Participant, Clearing and Risk, Market Oversight and Data divisions. 

Johnson emphasized the importance of the CFTC’s understanding of how market actors adopt AI in the derivatives markets. Critically, the RFC asks respondents to weigh in on the proper definition of AI — how broad or narrow the definition should be, and how to draw the line between AI and other current automated trading strategies.

Related: Bitcoin ETFs are wrapped in ‘thin layer’ of indirect regulations — CFTC chair

In Septemeber 2023, CFTC Commissioner Christy Goldsmith Romero suggested updating protection measures with technology advancements to safeguard American investors, emphasizing potential negative consequences if not implemented.

Spearheading the CFTC’s effort to amp up investor protections and guardrails, Romero appointed technology experts in fintech, responsible artificial intelligence, cryptocurrency, blockchain and cybersecurity to the CFTC’s Technology Advisory Committee.

Meanwhile, the CFTC has waned investors searching for massive cryptocurrency profits against relying on artificial intelligence trading bots to deliver. The agency highlights those promising impressive yields using bots, trade signal algorithms, crypto-asset arbitrage algorithms and other AI-assisted technology as fraudsters.

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