NFA Sets Effective Date for Digital Assets Rules
NFA set an effective date of May 31, 2023 for the recently adopted Compliance Rule 2-51, which establishes requirements applicable to firms engaging in "digital asset commodity" activities. The rule defines "digital asset commodity" to mean Bitcoin and Ether only.
As previously covered, under the new rule, NFA would have the jurisdiction to discipline member firms for fraud and similar misconduct relating to digital commodities. NFA would also have the authority to impose NFA requirements: (i) to observe standards of commercial honor and just and equitable principles of trade and (ii) diligently supervise employees and agents. The rule requires compliance with disclosure requirements for offering and promotional materials pursuant to NFA Interpretive Notice 9073 ("Disclosure Requirements for NFA Members in Virtual Currency Activities.")
In a statement, CFTC Commissioner Caroline D. Pham pointed to similarities between spot retail forex markets and spot crypto markets, including the importance of having "strong customer protections and regulatory oversight" to stop fraud and manage risk. She added that while "digital asset commodities" is currently defined as Bitcoin or Ether, the rule can be modified to cover other digital asset types in the future.
Commentary
This rule will likely encourage member firms engaged in the business of spot transactions in Ethereum and Bitcoin to move that activity to a non-NFA member. As for the anti-fraud rules under the new rule, they are hard to quibble with conceptually, as firms would be subject to similar requirements under the CEA, federal wire fraud statutes, and state law in any event. The other requirements under the new rule are potentially more significant, as they essentially put transactions for which there is no general regulatory authority under review by regulators.
The jurisdictional scope is also interesting. Rather than covering any digital asset that is a "commodity," the NFA limits the rule to BTC and ETH on the theory that those are the only two assets with listed commodity interest products certified. It's clear at this point the CFTC views a variety of other digital assets to be "commodities" (including various stablecoins), but the NFA does not attempt to assert jurisdiction over those products.