The Commodity Futures Trading Commission (CFTC) has announced the establishment of a dedicated task force known as the Cybersecurity and Emerging Technologies Task Force within its Division of Enforcement. This task force has been created to address the critical concerns surrounding cybersecurity and emerging technologies, including artificial intelligence.
The CFTC recognizes the need to be proactive and adaptive in safeguarding derivatives markets against evolving threats.
“Recent events that directly impacted derivatives markets highlight the concerns that cybersecurity breaches raise in our markets. Meanwhile, as more firms tout their environmental credentials and as voluntary carbon markets grow, there exists the potential for fraud and manipulation. The creation of these two task forces demonstrates the vigorous and forward-looking approach the CFTC will take to address misconduct in these critical areas.” — Rostin Behnam, CFTC Chairman.
Potential implications for key objectives
With fast-moving technological advancements — headlined by AI tools and platform add-ons — the Cybersecurity and Emerging Technologies Task Force should aim to meet the following objectives:
Fortify cybersecurity controls and safeguards
The task force will ensure that registrants, encompassing market participants and entities operating within derivatives markets, possess robust cybersecurity controls. This includes implementing effective measures to safeguard customer information and overall system security. By establishing comprehensive guidelines and best practices, the task force aims to enhance the resilience of derivatives markets against cyber threats.
Prosecute hacks, exploits and account intrusions
A primary responsibility of the task force is to identify and prosecute individuals or entities involved in manipulative hacks, exploits, and account intrusions that target commodities markets. Through legal action against perpetrators, the task force aims to maintain market integrity and fairness.
Address technology-enabled thefts of material non-public information
The task force will actively investigate and address cases where valuable material non-public information is stolen using technology. This includes identifying and prosecuting individuals or groups engaged in the theft of sensitive information pertaining to commodities markets. By doing so, the task force seeks to prevent illicit gains and safeguard the confidential information of market participants.
Explore the role of emerging technologies
Considering the rising prominence of emerging technologies such as artificial intelligence and machine learning, the task force will closely examine their potential involvement in violating the Commodity Exchange Act and CFTC regulations. This includes assessing the misuse or exploitation of these technologies for market manipulation, fraud, and other illicit activities. Through a comprehensive understanding of these potential risks, the task force can develop appropriate regulations and guidelines to mitigate them effectively.
Emphasize effective supervision of emerging technologies
Acknowledging the increasing adoption of emerging technologies by market participants, the task force will prioritize the need for effective supervision. It aims to ensure that registrants exercise proper oversight and management of emerging technologies, including artificial intelligence and machine learning, to minimize risks and prevent potential violations. By promoting responsible and accountable usage of these technologies, the task force aims to uphold market integrity and safeguard investor interests.
Financial firms should closely monitor and watch the potential implications arising from establishing the Cybersecurity and Emerging Technologies Task Force by the CFTC. As this task force addresses critical concerns surrounding cybersecurity and emerging technologies, including artificial intelligence, financial firms must be vigilant and proactive in adapting their practices to align with the evolving regulatory landscape.
As regulated industries look to effectively monitor potential implications, we would advise the following strategies:
- Stay informed: Regularly monitor CFTC updates and guidelines to stay updated on the task force’s initiatives and regulations.
- Assess compliance readiness: Conduct comprehensive assessments of cybersecurity controls and systems to meet task force standards.
- Enhance cybersecurity measures: Proactively improve cybersecurity practices according to CFTC best practices, including investing in advanced tools and conducting audits.
- Monitor market activities: Closely watch market activities using advanced monitoring and surveillance technologies to detect manipulative behavior and cyber threats.
- Educate employees: Provide training programs to raise awareness about cybersecurity and emerging technologies compliance.
Author: Tiffany Magri – Regulatory Advisor at Smarsh
As a Regulatory Advisor at Smarsh, Tiffany monitors, evaluates and consults on the financial services regulatory landscape. Tiffany has more than 10 years of experience facilitating compliance with laws and regulations, policies, and risk management. Prior to joining Smarsh, Tiffany was a Senior Associate at Benefit Street Partners and a Compliance Analyst at Broadstone and Manning & Napier Advisors.
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