On December 1, 2022, Commodity Futures Trading Commission Chairman Rostin Behnam testified before the US Senate Committee on Agriculture, Nutrition and Forestry. The Chairman’s speech focused on the lessons to be drawn from the recent collapse of digital asset market FTX.
Chairman Behnam began his testimony by pointing to the problems he believes enabled FTX’s issues. He noted that the current patchwork of federal and state regulations do not provide sufficient guidance or restraints, and that the failure to pass comprehensive legislation will likely leave consumers exposed to fraud and manipulation in the digital asset markets. The chairman told the committee that the way to prevent events like the collapse of FTX and the ensuing harm in the future is for the CFTC and the SEC to regulate the digital commodity token and digital security token markets comprehensively.
Chairman Behnam offered recommendations on what additional regulatory oversight could be implemented to further protect market participants, for example he explained that Congress could enable regulators to:
- require that markets that target retail market participants be registered with a federal market regulator;
- impose mandated segregation and protection of customer funds, maintenance of sufficient operating capital, adequate internal controls, and accurate public disclosures;
- mandate conflicts of interest rules, and;
- not allow conflicting roles such as operating an exchange while trading against customers on that exchange.
Chairman Benham also recommended that comprehensive regulations should allow the CFTC and SEC to conduct examinations and oversee ongoing trading activity. Regulatory authorities must also have enforcement powers that protect consumers in addition to holding perpetrators of fraud or manipulation accountable for their acts. Despite the limited scope of the CFTC’s current enforcement authority, Chairman Benham noted that the agency has brought more than 60 enforcement actions in the digital asset arena since 2014, and has imposed penalties of over $820 million. One-fifth of the CFTC’s enforcement actions in the past year have involved digital assets.