Before Senate, CFTC cites crypto as basis for biggest expansion since Dodd-Frank

Quick Take

  • CFTC Chair Behnam is seeking new regulatory authority, technological tools and a major increase in funding to bring crypto “into the regulatory fold.” 
  • Senators and Behnam himself were quick to draw parallels to Dodd-Frank’s expansion of the CFTC’s authority over swap markets in the aftermath of the financial crisis. 

The Commodity Futures Trading Commission wants to bring spot markets for cryptocurrencies into its regulatory regime, in what would potentially be its biggest expansion since the 2010 Dodd-Frank legislation.

On February 9, CFTC Chairman Rostin Behnam testified before the Senate Agriculture Committee on cryptocurrencies. Central to his appearance was his push to bring crypto “into the regulatory fold.”

In other words, that means bringing crypto spot markets under the CFTC’s oversight. The CFTC’s current oversight is largely limited to futures and derivatives markets. Within spot markets, the CFTC can prosecute fraud and manipulation, which Behnam says that the commission has done remarkably well.

However, Behnam lamented the lack of information available to the CFTC. “In essence, this is an unregulated market,” he said to Ag Committee Chairwoman Debbie Stabenow (D-MI). “There is so much we are not able to see because of this limited authority.”

During his confirmation hearing, Behnam made a similar appeal, but at the time would not confirm to The Block that he was asking for a true regulatory regime. However, today, he clearly compared the proposed shift to the expansion of CFTC over swap markets as a result of Dodd-Frank.

Stabenow asked, “does the CFTC have the resources necessary to take on this additional responsibility with respect to the digital asset market?”

“The short answer is no,” answered Behnam, proposing a massive expansion. While saying he didn’t have an exact dollar amount, he referenced the boost in the CFTC’s operating budget from roughly $200 million to $300 million following Dodd-Frank, noting that a similar $100 million boost would be a rough ballpark. 

$100 million would represent a 30% increase compared to the CFTC’s requested operating budget of $332 million for 2022. 

Senator Amy Klobuchar (D-MN) drove the point home further, asking “Are there parallels with Dodd-Frank?”

“It’s a perfect example and a perfect analogy,” said Behnam.

John Boozman (R-AR), the committee’s leading Republican, also seemed comfortable with the CFTC expanding into crypto spot markets. His primary concern was in limiting that expansion to crypto, without fueling “mission creep” into other cash commodities. 

“I couldn’t agree with you more. I don’t mean to suggest at all that this should be the start of the CFTC’s role in other cash commodities,” said Behnam. “This particular market is so unique because of the retail-facing element.”

With the Ag Committee confirming him in December, this is the first time Behnam has testified since, illustrating that digital assets “are at the front and center of our thinking at the Commission,” as he put it. 

Potentially limiting this expansion is the CFTC's relative authority over the Securities and Exchange Commission, which answers to separate congressional committees.

SEC Chair Gensler has similarly talked of bringing crypto exchanges "into the public policy framework." Gensler has also indicated that cryptocurrency exchanges may already be securities exchanges, though the SEC has been hesitant to act on that proposition. 

© 2023 The Block. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.