The top U.S. commodities regulator is telling U.S. senators his agency would be the "furthest thing from a light touch" if it were given greater authority to regulate bitcoin and similar digital assets.
Rostin Behnam, the chairman of the Commodity Futures Trading Commission, testified before the U.S. Senate Committee on Agriculture, Nutrition and Forestry on Dec. 1 that passing crypto legislation that's now before Congress would be a strong step toward preventing future catastrophes akin to FTX's collapse. FTX filed for bankruptcy on Nov. 11 following revelations that it had made billions of dollars worth of risky loans to its affiliated trading firm, Alameda Research.
The Senate's agriculture committee was by then well on its way to advancing the
In general, commodities are thought of as goods that, like food or precious metals, are valuable for their own sake. Securities, by contrast, are considered investments that promise returns over time — stock in a company, for instance.
Besides efforts to better regulate crypto, the downfall of FTX has come amid a push by some lawmakers to give retirement plan advisors greater leeway to invest savings into digital assets.
"A CFP professional who recommends cryptocurrency-related assets must advise the client that the asset is difficult to value, if that is the case," according to the CFP Board's notice. "There is no commonly accepted valuation methodology for many cryptocurrency-related assets."
Behnam said at the Senate hearing that the pending crypto legislation should most likely be revised in the light of lessons learned from the FTX collapse. But if no additional regulatory authority is ever granted, he said, the CFTC will continue to have no authority to peer into the books of exchanges like FTX to look for signs of wrongdoing and prevent conflicts of interest. The agency will instead be confined to responding to whistleblower complaints or other sorts of referrals. Behman said the CFTC received no warnings about FTX before its collapse.
Without the pending legislation, he said, "There will remain gaps in the federal regulatory framework, even if other regulators operate fully within their realms of authority."
Despite such support, critics have questioned why the FTX founder, Sam Bankman-Fried, was such an
Among the recipients of his largesse were the top two lawmakers on the Senate Agriculture Committee — Sens. Debbie Stabenow, a Democrat from Michigan, and John Boozman, a Republican from Arkansas — who each got $5,800.
In an interview at The New York Times's DealBook Summit in New York on Nov. 30, Bankman-Fried acknowledged that he had met with regulators on many occasions over the past couple of years to discuss oversight of his industry. But he denied that his political giving had anything to do with his ability to secure those meetings. Instead, Bankman-Fried — speaking from the Bahamas on a video link — said his discussions with SEC officials and others were the result of his "asking again and again to have meetings with relevant regulators."
Behnam told Senators that he had reviewed his calendar and found that he or other CFTC officials had sat down with Bankman-Fried 10 times in the past 14 months. The conversations were almost entirely about a pending application for the only one of FTX's subsidiaries to fall under the CFTC's jurisdiction. That was LedgerX, an options and futures exchange for digital assets.
Behnam repeatedly noted that LedgerX, which does business as FTX US Derivatives, is among the few FTX-affiliated companies to remain solvent following the parent firm's bankruptcy. That should be taken as a sign, he said, of the CFTC's effectiveness as a regulator. He also said that even with its existing regulatory authority, the CFTC has done a good deal of crypto enforcement. Since 2014, his agency
"We are the furthest thing from a light touch," Behnam told the Senate agriculture committee. "We are one of the strongest regulators in the world, especially around derivative markets."
He said a regulated financial institution wouldn't have been allowed to be as "vertically integrated" as FTX was. The firm, he said, was able to act like an exchange, a broker-dealer, a market-maker and a custodian all at the same time.
Sen. Strabenow went even further, saying "If our bill had been law, FTX's conduct would have been illegal and could have been prevented."
But skepticism lingers. In a Sept. 9
"Restricting the authority of state securities regulators would be a gigantic step backwards for entrepreneurs, investors, and capitalism generally," according to NASAA's letter.
Other critics have warned of possible infringement on the SEC. In a
"There is little, if any, hope," said Better Markets, "for the CFTC to also undertake regulating, supervising and policing the vast, novel and growing crypto industry in addition to their current duties."
Behnam, who has requested an additional $100 million in his agency's next budget in part to regulate crypto, rejected any notion of a turf war with the SEC. He said the two agency jurisdictions are clearly defined and that the CFTC, because of its history of dealing with commodities, is best suited to dealing with digital assets that don't fit the definition of a security.
Behnam said the proposed legislation is largely an attempt to bring crypto under the same sorts of rules that have provided stability in other parts of the economy. But does that mean no further legislation is needed?
"Probably not," Behnam said. "But it is a step in the right direction. We've modeled it after what has worked in the past. Our banking and market regulations are sound. They work well."
