CFTC Should Be Crypto’s ‘Primary Cop,’ Acting Chair Says

The Commodity Futures Trading Commission (CFTC) is ready to be the main federal regulator for crypto, its acting head said Wednesday.

Rostin Behnam, the acting chair of the CFTC, told the Senate Agriculture Committee that the commodities regulator is ready to become the primary federal regulator for digital assets, should Congress expand the agency’s remit.

Behnam was testifying as part of his confirmation hearing to serve a full term as chair of the agency.

“The CFTC has responsibly and aggressively been pursuing enforcement cases in the digital asset marketplace for a number of years now,” Behnam said, pointing to the agency’s recent settlements with Kraken and Tether.

The regulator pointed to the size of the crypto market, noting the overall market capitalization hovers around $2.7 trillion right now, and “nearly 60% were commodities.”

“I think it’s important for this committee to reconsider and consider expanding authority for the CFTC,” Behnam said.

He acknowledged that regulating crypto would be “a departure” from the agency’s historic role as a commodities regulator, but said the sector is important enough that the shift would be warranted.

“Given the size, the scope and the scale of this emerging market, how its interfacing and affecting customers, retail customers, and then with the scale of the growth being so rapid, potential financial stability risks in the future, I think it’s critically important to have a primary cop on the beat and certainly the CFTC is prepared to do that if this committee so wishes,” Behnam said.

Behnam later pointed to digital asset market transactions as posing a risk, including banking and prudential finance risks and clearing and settlement risks.

“We really also need to have a conversation about market regulation and sort of the exchange, the purchase and sale of these coins in a regulatory structure for both securities and commodities,” he said.

Brewing turf war?

The CFTC’s securities counterpart, the Securities and Exchange Commission (SEC), has also been moving to more closely regulate the crypto market. Under Chair Gary Gensler, who took office earlier this year, the SEC has approved new bitcoin futures exchange-traded funds (ETFs), expanding retail exposure to the digital asset sector.

However, Gensler himself has indicated that he believes the SEC may be best suited to become the primary cop for crypto.

In various public statements, Gensler has said the SEC should regulate exchanges like Coinbase because they may list securities for retail access, oversee stablecoins, a segment of the crypto market where each token is pegged to a fiat currency like the dollar, and regulate decentralized finance (DeFi), which seeks to recreate some traditional financial tools and platforms without a centralized party in control.

Gensler has also expressed his belief that “most” tokens are securities in a Congressional hearing.

Congress will have to act to give either agency a specific mandate over the crypto market, but at present there is no federal regulator for spot markets. The CFTC has the authority to oversee crypto derivatives markets and fraud within the underlying spot market, while the SEC has the authority to oversee securities and platforms that explicitly seek to list and trade securities.

Most crypto trading platforms are regulated at the state level, meaning they have to secure money transmitter licenses in each state they operate in. This piecemeal approach has received criticism from industry advocates due to the resources needed to secure nearly 50 different licenses.

UPDATE (Oct. 27, 2021, 15:10 UTC): Updated with additional context.

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