CFTC Commissioner Calls for Greater Authority Over Digital Asset Businesses
Commentary by Steven Lofchie
CFTC Commissioner Kristin N. Johnson called for expanded CFTC authority over digital asset entities.
In an address at a Duke University Conference on Digital Assets, Ms. Johnson said that the CFTC should have authority over entities in the digital asset business to (i) require the segregation of customer money from proprietary money and prohibit asset comingling, (ii) implement capital requirements and (iii) establish requirements for the adoption of conflicts of interest policies. She urged Congress to grant the CFTC the authority to conduct due diligence on any firm seeking 10 percent or more equity interest in a CFTC-registered entity.
She also encouraging the CFTC to consider "initiating a notice and comment process to identify a path that ensures that the Commission has greater visibility into the financial health, corporate governance, and risk management processes of any business seeking to acquire a significant equity ownership stake in CFTC-registered entities."
Ms. Johnson remarked that the CFTC and other regulators had limited visibility into firm operations leading up to the collapse of FTX since it was incorporated outside of the United States. She noted that a U.S. subsidiary of FTX, LedgerX, which is a CFTC registrant, is currently not a debtor in FTX's bankruptcy proceeding. She said that relying on existing regulatory frameworks may prove too limited in scope, and so Congress must adopt legislation that "closes the current gap in the oversight of crypto spot markets."
Commentary
In effect, Commissioner Johnson calls for authority along the lines that the FRB has with respect to banks; i.e., to regulate the holding company of the bank and potentially the subsidiaries of the holding company.