CFTC Chair Behnam Reacts to Recent Market Developments
In an address to the FIA Boca 2023 International Futures Industry Conference, CFTC Chair Rostin Behnam responded to recent developments on cyber risk and service providers, climate risk and crypto risk.
Mr. Behnam examined the following areas of market risk:
- Cyber Risk and Service Providers. Mr. Behnam highlighted the cyber-related incident at ION Cleared Derivates, to consider the role the CFTC should have in overseeing services providers to registered-entities. In the ION matter, he said that futures commission merchants were prevented from submitting timely and accurate positions data to the CFTC, which in turn, delayed the CFTC in delivering Commitments of Traders reports. Mr. Behnam asserted that current laws could not have prevented the ION incident because the CFTC does not have direct jurisdiction over third-party service providers. However, Mr. Behnam indicated that he has asked the Market Participants Division to identify potential weakness with respect to third-party service providers and vendor relationships.
- Climate Risk. In response to Congressmembers’ questions at a recent hearing (see previous coverage) on the CFTC’s role in supporting the "healthy acceleration and development" of voluntary carbon markets ("VCM"), Mr. Behnam reaffirmed the CFTC’s commitment to ensuring that VCMs grow in a responsible way with the appropriate safeguards in place.
- Crypto Risk. Mr. Behnam said that recent incidents causing the crypto market to be "shaken to its core" validate the need for action from Congress. He argued that because the "cryptoverse is not a closed system" regulatory measures are necessary to prevent against failures that might not be able to be contained within domestic or global financial markets. As legislation develops, Mr. Behnam reiterated his commitment to providing technical assistance where needed.
In addition, Mr. Behnam said that CFTC rules need to address the "current trajectory" of the industry. He said additional regulations that recognize a variety of activities at different entities are needed.
Commentary
Mr. Behnam's comments on the ION incident are notable in that he suggested that, while the CFTC does not have jurisdiction over third-party service providers used by registrants, it will be looking at the risks of those relationships. In other words, current CFTC registrants might want to re-examine the risks present in their relationships with third-party service vendors.