CFTC Commissioner Brian Quintenz described some of the regulatory challenges posed by blockchain "smart contracts," which he defined as a computer code that can execute the terms of a contract. Mr. Quintenz recommended that regulators start by breaking down the elements of the smart contract and analyzing whether existing laws apply. His speech was delivered at the 38th annual GITEX Technology Week Conference.
In his remarks, Mr. Quintenz discussed who should be held responsible when a smart contract violates CFTC rules. He said that prosecuting the individual users of smart contracts may be an "unsatisfactory, ineffective course of action." Instead, he suggested that enforcement actions against individual developers of the smart contract code could be appropriate if the code developers, at the time they wrote it, could reasonably foresee that the code would be used by U.S. persons in violation of CFTC regulations.
Mr. Quintenz questioned how the CFTC will enforce its regulations on U.S. activity when smart contracts can be executed seamlessly across borders between parties operating in countries with different regulations. He encouraged developers to work with the CFTC to understand whether a smart contract can comply with CFTC regulations, and warned that in the absence of such engagement from developers, enforcement is the CFTC's only option.
In addition, Mr. Quintenz asserted that traditional concepts of contract law, such as good faith and fair dealing, could be applied to smart contracts to protect users' reasonable expectations. Likewise, the CFTC could consider investigating the use of smart contracts to facilitate fraud or manipulation.
Commentary / Steven Lofchie
Among the more interesting of Mr. Quintenz's comments were to the effect that the developer of a computer code could be held liable for illegal use of the code by other parties where the developer might have been able to foresee such misuse, and even where the developer was not directly involved in such misuse.
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