US Commodity Futures Trading Commission Chairman Rostin Behnam testified before the Senate Agriculture Committee on 1 December, discussing lessons learned from the collapse of FTX.
Debbie Stabenow (D-Mich.), the committee's chairwoman, opened the hearing by stating that its goals were twofold: to understand what went wrong at FTX, and to ensure that legislation introduced by Stabenow and Ranking Member John Boozman (R-Ark.) remained fit for purpose. That legislation, if approved by Congress, would give the CFTC regulatory authority over the trading of cryptocurrencies that are not securities.
Behnam was supportive of these legislative aims. In his testimony, he helped explain some of the particulars around FTX, what gaps in the CFTC’s regulatory authority currently exist to prevent another potential FTX, and his ongoing support for urgent legislative efforts to address digital commodity market oversight.
"In light of recent events, the CFTC stands ready to continue working with this Committee and other members of Congress and revisiting existing proposals to ensure every known weakness, risk, and failure is addressed in legislation," Behnam said.
Legislative path forward for crypto
The legislation introduced by Stabenow and Boozman, known as the Digital Commodities Consumer Protection Act (DCCPA), was put forth in August before the collapse of FTX. During the hearing, Stabenow said the legislation was designed to prevent the kind of problems that led to the problems at FTX.
"The crisis created by FTX further confirms the need for a whole-of-government approach to regulating this market. The lack of clear, consistent rules has allowed crypto to flourish, despite harmful conflicts of interest, an absence of responsible governance and risk management, and a failure to safeguard customer assets," Stabenow said. "This is the very conduct the DCCPA was designed to prevent."
Boozman echoed his support for the bill, noting that it was the product of collaboration across the marketplace.
"The DCCPA is the result of bipartisan coordination, and widespread stakeholder engagement encompassing nearly the entire digital asset and financial services ecosystem, as well as consumer advocacy and academic input, and regulatory technical assistance," he said. "I remain committed to advancing a final version of the bill that will allow for the creation of safeguards the market desperately needed prior to the collapse of FTX."
Generally, members of the committee and Behnam expressed support for the legislation's intent to expand jurisdiction of the CFTC to regulate digital commodity spot markets, provided the agency has the appropriate resources.
In response to questions from the committee, Behnam expressed willingness to work with Congress to potentially tighten provisions in existing legislative efforts in the areas of customer protections or conflicts of interest. However, he also warned against "analysis paralysis" in the aftermath of the FTX collapse, and stressed the importance of moving expeditiously.
"If we are going to ensure that FTX and the other firms that are subjecting customers to billions in losses are appropriately regulated and held accountable, we need to act promptly to apply a comprehensive regulatory regime," Behnam said.
Behnam also said he is committed to working with regulators like the US Securities and Exchange Commission to fill any regulatory gaps.
As in previous remarks, the CFTC chairman took time to clarify that Ledger X, which was previously also known as FTX US, did not fail with the rest of the broader FTX ecosystem in part because it was a CFTC regulated entity. Since 2017, LedgerX has been registered with the CFTC as a designated contract market (DCM), swap execution facility (SEF), and derivatives clearing organization (DCO) and subsequent to related oversight. "Based on the information presented to us, at this time, LedgerX customer property remains secure and LedgerX has the financial resources to continue operating for the foreseeable future," Behnam said.
The hearing also featured questions regarding the risks posed to retail investors in crypto markets, concerns about the vertical integration of digital trading platforms, the relationship between the CFTC and SEC on various issues, and the threat of cybersecurity risks, among other areas.
Official statements and documents
- View an archived webcast of the hearing.
- An overview of the DCCPA legislation can be found here.
- A section by section description of the DCPPA legislation can be found here.
- Charwoman Stabenow’s opening statement
- Ranking Member Boozman’s opening statement
- CFTC Chairman Rostin Behnam’s opening statement
