CFTC official issues warning over smart contracts, predictive code
A CFTC commissioner has warned smart contract developers that they could be held liable for blockchain functions deemed to be “predictive event contracts,” in the latest sign of regulators increasing their oversight of smart contracts.
Brian Quintenz, a commissioner at the U.S. Commodities and Futures Trading Commission, told a meeting of delegates in Dubai that old laws and regulations still apply to new technologies, and the likes of blockchain developments and smart contracts were not immune from these laws.
He noted that smart contracts can be highly customised, and can be used in place of traditional financial instruments, saying, “Essentially, these contracts would allow individuals to bet on the outcome of future events, like sporting events or elections, using digital currency. If your prediction is right, the contract automatically pays you the winnings.”
This could bring smart contracts within the ambit of the CFTC as a prediction market. Traditionally, these are prohibited by the CFTC, which sees event contracts in particular as “not in the public interest”.
Quintenz suggested that smart contract developers could be held accountable for any instruments that fall within the CFTC’s regulatory remit, saying: “Therefore, the particular fact pattern described above – event contracts, executed in a potentially for-profit manner, between retail customers, on any conceivable event, for any sum of money – raises multiple CFTC regulatory concerns.”
“If the contract is a product within the CFTC’s jurisdiction, then regardless of whether it is executed via a written ISDA [International Swaps and Derivatives Association] confirmation or software code, it is subject to CFTC regulation,” the official explained.
Quintenz said that developers should bear in mind how their smart contract would be used, and whether this would like violate CFTC regulations.
“I think the appropriate question is whether these code developers could reasonably foresee, at the time they created the code, that it would likely be used by U.S. persons in a manner violative of CFTC regulations,” the CFTC commissioner said, adding, “I would much rather pursue engagement than enforcement – but in the absence of engagement, enforcement is our only option.”
His comments come as the starkest warning yet from the regulator, which has been upping its efforts towards tackling perceived infringements of regulations from blockchain and cryptocurrency markets under its jurisdiction.
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