FTX's sudden collapse has increased calls for regulation of the industry around the world, since the incident has exposed the need for clear and sensible guidelines. In the US, politicians are now demanding oversight by both the Securities and Exchange Commission (SEC) and the Commodities and Futures Trading Commission (CFTC).
A hearing of the Senate Agriculture Committee called for Congress to act fast to pass CFTC laws. This in regarding to prevent further loss of funds in the wake of the FTX collapse. The committee interrogated Commodities and Futures Trading Commission (CFTC) head Rostin Behnam to clarify what led to the rapid unraveling of FTX. They also discussed how to protect American customer funds going forward.
CFTC bill allows sharing of regulatory responsibility
The committee was quick to condemn the lack of risk management at FTX and the need for rapid regulation to ensure that such a collapse doesn’t recur. Committee chair Senator Debbie Stabenow said she hoped the Digital Commodities Consumer Protection Act of 2022 would serve the purpose of greater regulation of the crypto industry under the authority of the CFTC. Stabenow co-drafted the bill with Senator John Boozman in Aug. 2022. Critically, she added that the CFTC would not be the exclusive agency to regulate crypto.
“I’ve said this before, and I’ll say it again, the Digital Commodities Consumer Protection Act does not does not take authority away from other financial regulators, nor does it make the CFTC the primary crypto regulator, because crypto assets can be used many different ways,” - Debbie Stabenow, US-Senator
This clarification comes after Securities and Exchange Commissioner chairman Gary Gensler took issue with the bill. He argued that the CFTC-centric bill would not be enough to protect investors. Also the Senate Agriculture Committee oversees the CFTC, which regulates U.S. derivatives and commodities markets.
Authority mainly lying with the SEC
According to Benham, FTX had previously engaged with the CFTC to register a U.S.-based derivatives exchange and clearinghouse, LedgerX. He said that the company’s operations remain solvent for the foreseeable future. Furthermore, he argued that the CFTC had been critical in ensuring that LedgerX escaped the bankruptcy of the 130 entities with links to FTX. President Joe Biden swore in Behnam as the fifteenth CFTC Commissioner on Jan. 4, 2022. The Commissioner urged Congress to arm the Commodities and Futures Trading Commission with authority to regulate the cryptocurrency industry.
“At the CFTC we lack the authority to comprehensively regulate the digital asset market, and to prevent this from happening again, we must be provided with the appropriate authority from Congress.” - Rostin Behnam, Chairman at the CFTC
Behnam rejected the notion that the CFTC was a light-touch regulator compared to other federal agencies. He pointed out that the agency imposed two-and-a-half billion dollars in penalties in 2022. Though multiple industry players have pointed to the lack of regulatory clarity as the reason for FTX’s collapse, crypto skeptic and former SEC official John Reed Stark says that the crypto industry’s calls for regulatory clarity are nothing more than a thinly-veiled gambit to get approval for risky speculation.