December 1, 2022

CFTC Chair Behnam Urges Congress to Act on Digital Assets

Nihal Patel Commentary by Nihal Patel

In testimony before the Senate Committee on Agriculture, Nutrition, and Forestry, CFTC Chair Rostin Behnam urged Congress to move quickly on a "thoughtful" regulatory approach for digital assets.

Mr. Behnam said that the collapse of cryptocurrency exchange FTX highlighted the need for a regulatory regime that establishes consumer protections. He noted that the CFTC does not have authority over cash digital commodity markets beyond anti-fraud and manipulation authority. He restated his encouragement of congressional action to contemplate shared responsibility between the CFTC and SEC over digital assets, with the SEC having authority over "security tokens."

Mr. Behnam cited LedgerX, an FTX subsidiary, as an example of CFTC regulation working successfully, noting that the firm has not filed for bankruptcy and that based on CFTC knowledge and information, "LedgerX customer property remains secure . . . and [the firm] has the financial resources to continue operating for the foreseeable future." He contrasted the protections put in place at LedgerX from the lack of operational and legal safeguards around customer property at unregulated crypto trading firms.

Commentary

Mr. Behnam is in an unfortunate position, forced to defend his agency against charges that it failed to act in an area where its jurisdiction was limited and unclear. (And an area where the agency has already taken a number of actions, some quite aggressive.) Senators questioned Mr. Behnam for the CFTC's meetings with FTX personnel on its proposal for LedgerX to use a non-intermediated model for derivatives (since withdrawn). The validity of a registered and regulated clearinghouse permitting clearing without the involvement of a futures commission merchant - an intellectually compelling debate which inspired 1500 comment letters - is irrelevant to the more pressing question of how digital assets should be regulated. On that front, legislative efforts, including those pushed for by Mr. Behnam, do not completely clarify the landscape.

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