CFTC 'well-positioned' to fill regulatory gap in crypto: Behnam

Turmoil in the cryptocurrency markets shows action is needed and the Commodity Futures Trading Commission is “well-positioned” to fill a regulatory gap in cryptocurrency markets if Congress chooses, the agency’s chair said. 

The agency is also “working towards another strong year of precedent setting cases,” following the spectacular fall of crypto exchange FTX and other companies’ failures over the past few months, CFTC Chair Rostin Behnam said.

“The bankruptcies, failures, and runs only validate that action is needed,” Behnam said at an American Bar Association meeting. “The ecosystem is vast, will not vanish, and needs comprehensive legislation.”  

Lawmakers introduced bills last year to regulate crypto including the Digital Commodities Consumer Protection Act, or DCCPA. That bill had support from former FTX CEO Sam Bankman-Fried and would give the commodities agency the authority to regulate digital assets. The bill would need to be reintroduced this year.  

Behnam said the CFTC will continue to work with new stakeholders. 

Enforcement train roaring through 

To date the agency has brought 69 enforcement actions involving digital assets, which Behnam said shows the “outstanding capacity” of its staff.  

Some of the prominent cases included a first for the agency, such as a complaint filed against Ooki DAO in September alleging that it has been illegally running a futures exchange.  

Along with the Securities and Exchange Commission, the agency also brought civil charges in December against FTX, Bankman-Fried and Alameda Research for misappropriating customer funds. The Justice Department is separately pursuing a criminal case against Bankman-Fried. 

Behnam said the agency’s Division of Market Oversight is considering whether designated contract markets that list crypto-based derivatives contracts, or are affiliated with crypto spot markets, should adopt policies to restrict trading by certain employees. Designated contract markets, or DCMs, are companies that allow the trading of derivatives.  

Cyber is an 'increasingly urgent problem' 

Cyber risk will get its own rulemaking, Behnam said.  

“The growth of cybersecurity threats to financial institutions is well-documented and widely recognized as an important and increasingly urgent problem,” Behnam said.  

The agency too has brought cases against firms for not following certain cybersecurity policies. In 2019, a firm settled charges with the CFTC after the agency said the firm allowed cyber criminals to breach email systems and did not disclose the breach to customers in a timely manner.  

Behnam's remarks come after the derivatives trading arm of financial company Ion Markets was hit by a hack earlier this week, affecting its activity.