CFTC Lacks Proper Authority for Retail Crypto Oversight, Better Markets Contends
Financial reform advocacy organization Better Markets has raised concerns about the CFTC's proposed regulatory framework for retail crypto trading with leverage, contending the agency lacks SEC-level investor protections.
According to Better Markets, the United States derivatives regulator's effort to establish regulations for specific retail cryptocurrency transactions may expose investors to diminished protections, with the advocacy organization maintaining the agency lacks proper qualifications to supervise this marketplace.
The Commodity Futures Trading Commission requested public feedback on Monday regarding a prospective regulatory framework for retail cryptocurrency transactions involving margin, leverage, or financing under the agency's current regulatory powers. Benjamin Schiffrin, who serves as director of securities policy at Better Markets, a nonprofit organization advocating for financial reform, maintained that CFTC supervision is inferior to SEC oversight when it comes to safeguarding retail investors.
Unlike the SEC, the CFTC lacks an investor protection mandate. Its mission is to regulate the commodity and derivatives markets, which historically have been dominated by large institutions with very little retail investor participation.
Benjamin Schiffrin, Director of Securities Policy at Better Markets
Because the CFTC's rules lack the protections that apply when investors trade securities regulated by the SEC, the CFTC is the wrong agency to regulate transactions involving crypto assets by retail customers.
Benjamin Schiffrin
The criticism from Better Markets arrives as both the CFTC and SEC advance their cryptocurrency policy initiatives using current statutory authority following the legislative stalling of the CLARITY Act in Congress. Previously, both regulatory bodies had indicated their readiness to proceed with regulatory action independent of new legislative authorization.
Better Markets questions "crypto capital" goal
Better Markets additionally disputed the CFTC's assertion that Congressional intent was for the agency to maintain regulatory jurisdiction over these categories of retail cryptocurrency transactions.
Schiffrin pointed out that the statutory framework referenced by the CFTC was initially passed to combat fraudulent practices in leveraged precious-metals transactions, and maintained that this legislative history did not demonstrate Congressional intention for the agency to assume a primary regulatory role for retail cryptocurrency markets.
He further criticized the regulatory framework being evaluated for potentially permitting relationships between market participants that Better Markets asserted were contributing factors to FTX's collapse.
Schiffrin additionally challenged statements made by CFTC Chair Mike Selig regarding transforming the US into the world's crypto capital.
Yet he does not explain why that is a good thing. For example, the US is not the cocaine production capital of the world, and no one is complaining—for good reason.
Benjamin Schiffrin
Crypto—after 18 years of effort and innumerable disproved and baseless claims—still lacks any real-world use case. It is used either purely for speculation or for criminal purposes.
Benjamin Schiffrin
Nate Geraci, president of NovaDius Wealth Management, challenged this characterization, asserting that the cryptocurrency industry is merely pursuing regulatory clarity and maintaining that, absent Congressional action, both the CFTC and SEC may need to establish such guidelines.
CFTC, SEC move ahead after CLARITY setback
The CFTC's recently proposed cryptocurrency regulatory framework additionally contemplates establishing a novel federal classification for cryptocurrency trading platforms that would place qualifying exchanges under direct CFTC regulatory supervision.
Concurrently, the SEC has also advanced multiple cryptocurrency regulatory initiatives. The agency proposed modifications to certain custody regulations for investment advisers on Thursday, while separately authorizing limited trading of tokenized US equities and releasing updated guidance clarifying how securities regulations apply to cryptocurrency markets.