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Some organizations are so interesting that we come back to them more than once. Among US regulatory agencies, the most fascinating may be the Commodity Futures Trading Commission. Last July we ran a podcast conversation with the Commission\\u2019s Chairman, Christopher Giancarlo, which goes into greater depth about the role of the CFTC and it also contains Chairman Giancarlo\\u2019s thought-provoking statement that the top priority facing every regulatory body is to convert the rule book from analog to digital design. The CFTC is at the forefront of regulatory innovation in part because its leader is so passionate about the importance of it.

In that spirit, they recruited the perfect person to lead the LabCFTC innovation project -- today\\u2019s guest, Daniel Gorfine. Luckily for us, the CFTC was able to attract Dan into government from the fintech sector \\u2013 I first met him when he was at OnDeck \\u2013 and he\\u2019s been bringing an innovator\\u2019s mindset and working models to this venerable government agency.

This episode has three very meaty topics, each of which could have been a whole show.

First, Dan talks about the vision and work of LabCFTC, sharing insights about how it\\u2019s organized that I know other regulators will find helpful. He talks about how they track and facilitate innovation in the financial markets, including a \\u201cprimer\\u201d they issued on rules applying to cryptocurrency. He also explains how they explore new technology for use by the agency, itself -- they call that CFTC 2.0 -- as well as \\u201cDigital Reg,\\u201d an internal think tank for rapid learning and sharing of tech insight.

Second, Dan talks with me about an exciting initiative they\\u2019ve just launched, issuing the first-ever CFTC Science Prize Competition Act challenge. They discovered this law empowering agencies to run competitions to solve regulatory problems in science and technology, and they decided to crowdsource ideas on both the problems to tackle and the process to use. Public comments are due July 24. In our conversation, Dan throws out some of the ideas he and his colleagues have thought of -- maybe regulatory data visualization tools, or machine-learning for market surveillance, or machine-readable and machine-executable regulation -- but they want to hear from you. Our listeners are among the most thoughtful people anywhere on regulation innovation, so please comment. You could even become CFTC Innovator of the Year!

Our third topic is one that rarely surfaces in the innovation dialogue, and solely needs discussion: the legal and procedural obstacles to government agencies that want to embrace innovation. We could call the topic, government modernization.

Think about it. If you were a federal agency wanting to keep up with technology innovation, you would want to be able to do a few things. You would want to be able to try out new technologies, hands-on. If the innovation was something you might adopt for your own agency, you would want to test it before you had to commit to a major procurement budget and procedure. You would also want to be able to brainstorm with a wide range of people, learning from them, thinking through ideas with them.

All of this is stunted today by well-intentioned rules that were designed long ago -- for good reason -- to prevent inappropriate influence, backroom deals, and the like. Dan talks in particular about the Anti-Deficiency Act, which restricts procurement activities and prevents the CFTC from being able to try out new kinds of tools. Another issue is the procurement process itself. I met a few months ago with people from a different agency, showing them some innovative technology that could make their regulatory work easier, and one of them said, \\u201cIf we decided today that we should adopt this, we would have it in seven years.\\u201d

I\\u2019ve talked with other agencies that cite the Federal Advisory Committee Act, with its restrictions on meetings, and the Administrative Procedure Act, which structures the rule-making process and, at some stages, limits interactive dialogue. Agencies have raised concerns about various \\u201cgovernment in the sunshine\\u201d rules, which again make it difficult to talk informally. Some can\\u2019t readily attend a breakfast or lunch event. They have to ask about the value of the meal being served and if it\\u2019s more than, I think it\\u2019s $15, they can\\u2019t eat it, or they have to go through paperwork to pay for it. And of course, there are complex approval processes for participating in various kinds of forums.

More than any show we\\u2019ve done, this one puts you in the shoes of the regulatory agency and shows how their hands are tied by procedural prohibitions and requirements. I\\u2019d love to see someone do a study, maybe a graduate thesis, on how rules that were written in an older, slower era may now undermine the ability of regulators to keep up with exponential change in technology. We could use suggestions on updating them for the digital age. And remember, it\\u2019s an issue much broader than finance.

I\\u2019ve been in and around Washington for decades and can remember the bad old days before some of these rules were created -- indeed, I remember some of the bad old practices that led to them. Still, we don\\u2019t need to straightjacket our regulators. Other countries have a much more fluid discussion between agencies and industry, and also have the ability to try things. One model is the Bank of England\\u2019s Fintech Accelerator, which explores new technology for the bank itself. And Dan and I both participated in London last month in the amazing AML Tech Sprint run by the UK Financial Conduct Authority -- which is a stunning model of innovative regulatory process. Its leaders were my guests on the last podcast we posted (which my friend Peter Renton of LendAcademy and LendIt called the \\u201cmost fascinating discussion he\\u2019s ever heard on the future of financial regulation\\u201d -- if you missed it, check it out).

Meanwhile, here\\u2019s some great news. Just a few days ago, Congressman Austin Scott (R-GA) introduced the CFTC Research and Development Modernization Act, H.R. 6121. Dan refers to it in our talk \\u2013 it\\u2019s bipartisan legislation to address some of these hurdles at the CFTC. We\\u2019ll link to it in the show notes. The bill would permit the Commission to collaborate on projects with fintech developers. It would also allow it to receive \\u201cgifts\\u201d for R&D purposes, including software to try out, subject to common sense safeguards.

The bill echoes work by Congressman Patrick McHenry (R-NC), who has sought to facilitate innovation by all the financial regulatory agencies. And the US agencies, themselves, are all moving ahead, too. The CFPB\\u2019s Acting Director, Mick Mulvaney, plans to launch a regulatory sandbox. The FDIC held a tremendously impressive technology forum. Five US agencies attended the UK tech sprint.

Regulation innovation is coming, and no one is more thoughtful about it than Dan Gorfine.

More links

• Our Podcast with Christopher Woolard of the UK Financial Conduct Authority
• Our Podcast with Nick Cook, the FCA\\u2019s head of regtech
• FinRegLab, which is leading regulatory innovation in the US
• Link to transcription of this episode (Note that transcripts may sometimes contain errors and that transcript timing notations do not match the posted podcast)

More on Dan Gorfine

Daniel Gorfine is Chief Innovation Officer and Director, LabCFTC at the U.S. Commodity Futures Trading Commission. LabCFTC is dedicated to facilitating market-enhancing financial technology (FinTech) innovation, fair market competition, and proactive regulatory excellence and understanding of emerging technologies. Daniel is also an Adjunct Professor at the Georgetown University Law Center where he teaches a course on \\u2018FinTech Law & Policy.\\u2019 Daniel was most recently Vice President, External Affairs & Associate General Counsel at OnDeck, and previously served as director of financial markets policy and legal counsel at the Milken Institute think tank where he focused on technology-driven financial innovation, capital access, and financial market policy. Earlier in his career, Gorfine worked at the international law firm Covington & Burling LLP and served a clerkship with U.S. District Court Judge Catherine C. Blake in the District of Maryland. A graduate of Brown University (A.B.), Daniel holds a J.D. from George Washington University Law School and an M.A. from the Paul H. Nitze School for Advanced International Studies (SAIS) at Johns Hopkins University.

More for our listeners

We have many more great podcasts in the queue. We\\u2019ll talk with another community bank CEO, Mike Butler of Radius Bank. \\xa0We\\u2019ll have two more episodes that we recorded this year at LendIt. One is a discussion of new research by LendUp and Experian, on credit reporting, and the other is with Greg Kidd, Founder of Global ID. \\xa0We also recorded two episodes at last month\\u2019s Comply 2018 conference in New York, with two regtech firms -- Compliance.ai, which offers machine-readable regulatory compliance, and Alloy, which has high-tech solutions for meeting the Know-Your-Customer rules in AML.

Speaking of LendIt, I was a guest last week on Lend Academy podcast, and Peter Renton will be on our show soon as well, so watch for those.

I\\u2019m also excited we\\u2019ll have several leading members of Congress on the show in the coming weeks. So, stay tuned!

The summer conference slowdown is nearly upon us, but I hope to see you at upcoming speeches and events including:

• American Bankers Association Regulatory Compliance Conference, June 26, Nashville, TN

• Money 2020, October in Las Vegas. Among other things, I\\u2019ll be speaking on the Revolution Stage about the regulation revolution

Also, watch for upcoming information on my collaboration with Brett King on his new book on the future of finance -- we\\u2019ll have a show and events on that as well.

If you listen to Barefoot Innovation on iTunes, please leave a five-star rating on the show to help us build it. Also please remember to send in your \\u201cbuck a show\\u201d to keep it going, and come to jsbarefoot.com for today\\u2019s show notes and to join our email list, so you\\u2019ll get the newest podcast, newsletter, and blog posts. As always, please follow me on Twitter and Facebook.

And tell me what you\\u2019re thinking about digitizing regulation. Let\\u2019s widen this dialogue to more people and more and more ideas!