The chairman of the CFTC testified before the US Senate Agriculture Committee to call for greater authority over cryptocurrencies. The CEO of the FTX exchange, Sam Bankman-Fried, was also present at the hearing.
CFTC: more authority over cryptocurrencies
The testimony was held on 9 February at the Agriculture Committee because this is the committee that historically deals with commodities. In fact, these were originally agricultural products.
In his testimony, Chairman Rostin Behnam spoke about the CFTC’s powers to prevent fraud and protect consumers, noting that when it comes to the cryptocurrency market, there is not much it can do:
“The digital asset market, which at present is most directly supervised through state money transmitter licenses, is unique and presents many novel issues for the CFTC, given our limited authority to police these volatile markets. In fact, there is no one regulator, either state or federal, with sufficient visibility into digital asset commodity trading activity to fully police conflicts of interest and deceptive trading practices impacting retail customers”.
Despite its limited powers, the CFTC is doing what it can to tackle scams in the industry:
“The CFTC has brought nearly 50 enforcement actions, overseen an increasing number of registrants offering digital asset based derivative products, and established dedicated internal functions to stay abreast of the technical innovations fueling this market”.
With regard to the future, Rostin Behnam explained that the challenges imposed by the technology sector also require change and, more importantly, will require a joint effort by the CFTC and SEC.
Finally, he concluded:
“I believe many of the CFTC’s regulatory principles that have made the U.S. derivatives markets the strongest in the world can also serve to aggressively address many of the risks of digital assets. Since its inception, the CFTC and its markets have been at the forefront of innovation and technological development. We have also been a forceful and disciplined cop on the beat. The continued emergence of digital asset technology presents risks and opportunities, and the CFTC stands ready to leverage its expertise and experience to confront both”.
Sam Bankman-Fried, FTX: clear market oversight is lacking
Sam Bankman-Fried, the CEO of FTX, one of the best-known crypto derivatives exchanges in the US, also pointed out that the CFTC needs more powers and the ability to act within a clearer regulatory framework.
The testimony left on record reads:
“This patchwork of regulations increases the operational complexity of digital-asset platform operators, decreases capital efficiencies for customers, and hampers the ability of platform operators to optimize their risk-management programs. It also reveals gaps in federal market oversight due to the interplay of the CFTC and SEC regimes”.
The point is that some aspects of digital assets are regulated by the CFTC but others are not, and more importantly, according to Sam Bankman-Fried, it is not even clear what is a security and what is not, as indeed the lawsuit between Ripple and the SEC demonstrates:
“Not all digital assets indisputably meet the definition of a security under U.S. law, and consequently there are not clear, consistent and enforceable disclosure standards to inform investors about key information to assess risk relating to those digital assets. As such, there is no clear market oversight for spot trading of (non-security) digital commodities”.
This is also why, according to the FTX CEO, the CFTC’s jurisdiction should be expanded to include, at least,
“All spot transactions in (non-security) digital assets involving retail investors, regardless of whether the transactions currently fall within CFTC’s jurisdiction under CEA section 2(c)(2)(D)”.
Ultimately, Sam Bankman-Fried is confident that the CFTC could play a very important role in the digital asset ecosystem by providing protections to consumers provided that certain regulatory gaps are first filled.
If this happens the developments will only be positive:
“FTX believes that such efforts would combine the best aspects of traditional finance and digital-asset innovations, one of our primary goals, and further empower investors and consumers by consolidating access to the tools they seek for economic security, all in one place, and from a singular, risk-reducing platform”.