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CFTC Seeks Input on AI in Derivatives Markets to Enhance Compliance and Risk Management

The United States Commodity Futures Trading Commission (CFTC) is actively seeking insights into how regulated entities can harness artificial intelligence (AI) within their compliance endeavors and other domains.

To facilitate this pursuit, the agency has issued a request for comments, aiming to enhance its comprehension of AI’s present and potential applications and the associated risks in derivatives markets.

The feedback collected from this initiative could wield significant influence over forthcoming CFTC guidelines, interpretations, policy statements, or regulations.

The CFTC’s inquiry encompasses a wide spectrum of AI applications, spanning trading, risk management, compliance, cybersecurity, recordkeeping, data processing, analytics, and customer interactions.

In the realm of compliance, the agency has particularly spotlighted AI’s potential role in enhancing surveillance, Anti-Money Laundering (AML) efforts, and regulatory reporting functions.

Rostin Behnam, Chair of the CFTC, expressed that this request for comments (RFC) will fortify the CFTC’s strategic identification of top priorities and projects with AI applications.

It is intended to optimize their data-driven approach to shaping policies, bolstering surveillance, and enforcing regulations.

The CFTC has aligned this RFC with the directives set forth by the Biden Administration, which emphasize the safe, secure, and trustworthy development of artificial intelligence. Interested parties have until April 24, 2024, to submit their comments.

Commissioner Kristin Johnson underscored the ongoing nature of the conversation within the agency, involving multiple departments such as Market Participant, Clearing and Risk, Market Oversight, and Data divisions.

She emphasized the pivotal importance of the CFTC’s comprehension of how market participants employ AI within the derivatives markets.

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Importantly, the RFC solicits opinions on the appropriate definition of AI, including whether it should be broadly or narrowly defined and where the demarcation should be drawn between AI and other existing automated trading strategies.

In September 2023, CFTC Commissioner Christy Goldsmith Romero advocated for updating protective measures with technological advancements to safeguard American investors.

She underscored the potential adverse consequences if these measures were not adopted.

As part of this commitment to enhancing investor protections, Romero appointed experts in fintech, responsible artificial intelligence, cryptocurrency, blockchain, and cybersecurity to the CFTC’s Technology Advisory Committee.

Simultaneously, the CFTC has issued a warning to investors against placing excessive reliance on artificial intelligence trading bots in the pursuit of substantial cryptocurrency profits.

The agency has identified those who promise extraordinary returns through the use of bots, trade signal algorithms, crypto-asset arbitrage algorithms, and other AI-assisted technologies as potential fraudsters, cautioning investors to exercise caution in this regard.

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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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