Compiled by: Odaily Planet Daily
For two consecutive days, the US Securities and Exchange Commission (SEC) has filed lawsuits against two major head exchanges, Binance and Coinbase, shocking the crypto and even the entire financial industry.
While the SEC and its head, Gary Gensler, are frantically outputting, Rostin Behnam, chairman of the US Commodity Futures Trading Commission (CFTC), will also attend the House Agriculture Committee today on the topic of “providing clarity for the digital asset spot market.” Earlier, Rostin had posted the full text of his testimony on his personal social media, from which we may be able to see the current attitude of the agency towards crypto.
Below is the full text of Rostin’s testimony, compiled by Odaily Planet Daily.
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Chairman Thompson, Senior Commissioner Scott, and other commissioners, thank you for this opportunity.
On the necessity of legislative action
Since attending a hearing in the Senate two years ago, I have been emphasizing the necessity of “legislative action to address the lack of regulation in the digital commodity market.” In testimony before Congress and other public statements, I have made it clear that bringing this volatile market under regulatory oversight can protect customers, ensure market resilience and stability, and prevent risk from spilling over into traditional financial systems.
I am not alone in this thinking. Last year, the Financial Stability Oversight Council unanimously issued a report on “Financial Stability Risks in the Asset Market.” One core recommendation in the report was a call for Congress to enact legislation to fill the obvious regulatory gaps in the non-securities digital asset spot market.
Events over the past year have increased the urgency of these recommendations. The bankruptcy of several large digital asset platforms has wiped out billions of dollars in customer funds; multiple large market participants have been accused of colluding with affiliate trading platforms; and cyber vulnerabilities have been continuously exploited by hackers, resulting in billions of dollars in losses…
Leaving billions of dollars in customer funds and investments in entities that are essentially unregulated is a recipe for disaster. However, recent history has provided us with many workable experiences. After the 2008 financial crisis, this committee, on the basis of bipartisan cooperation, reformed the previously unregulated swaps market, designing transparency requirements, reporting and registration requirements, and other measures based on the core principles of sound market regulation.
In order to prevent future potential crises, these measures are necessary and have become effective regulatory rules in the derivatives market. In fact, there was a related entity regulated by CFTX (referring to Ledgerx, a derivatives exchange that was formerly under FTX Group) that avoided a similar outcome in the bankruptcy of FTX Group precisely because CFTC regulations require any registered entity to ensure customer funds segregation, adequate financial resources and proper governance. This means that the entity can protect customer funds and continue to operate from a business perspective.
I believe that similar, time-tested regulatory measures should be applied to the digital commodity market, with a focus on protecting customer assets, supervising trading activities, prohibiting conflicts of interest, and implementing strict cybersecurity standards.
Focus of Regulation
I encourage Congress and the executive branch to continue to focus on the regulatory gaps in digital commodities and fully support the committee in developing legislative measures to grant CFTC more power. However, any new laws considered by Congress cannot undermine existing laws. If securities laws apply, the Securities and Exchange Commission (SEC) should use its strong powers to protect customers and address information asymmetry between issuers and investors in the market.
I would like to emphasize that in any legislation concerning this issue, Congress should focus on the following:
1. Stronger customer protection
Strong customer protection is crucial in the novel and technologically complex market of digital assets. Congress should ensure that CFTC is fully empowered to require registered entities to make necessary disclosures on various matters (such as investment risks, cyber risks, mining, settlement practices, and other related activities) to ensure that customers receive the best prices and require registered entities to segregate and protect customer funds against platform failures.
We also know that these markets are often touted as a form of “inclusive finance,” but their users are the most susceptible to the inherent risks and predatory financial schemes associated with these assets. Any legislation in this area should recognize this dynamic and requires further work and research to better understand how these populations interact with this market and ensure they are adequately protected.
2. More comprehensive regulatory power
In the absence of federal market regulation, the digital asset market has been plagued by fraud and manipulation. The CFTC has been actively regulating these markets, with a total of 85 cases filed and fines and compensation exceeding $4 billion.
However, our legal authority in the digital commodity token spot market is somewhat limited, and we can only take action after fraud occurs. A more comprehensive regulatory system should give the CFTC the power to proactively develop rules to minimize fraud. This should include setting strict standards for preventing conflicts of interest, developing rules to maintain fair, open, and transparent markets, and actively monitoring trading activities of market participants.
3. New powers require more funding
Currently, the CFTC is the only financial market regulatory agency that relies on congressional appropriations. Other financial regulatory agencies have self-funding mechanisms, which provide greater assurance that their fiscal year budget requests will be fully funded. For regulatory agencies taking on new powers, Congress must provide the resources necessary to fulfill those new responsibilities. Regulation of the digital commodity market will place new responsibilities on the CFTC, and fulfilling these responsibilities cannot be accomplished solely with our existing resources.
I want to thank the committee for giving me the opportunity to testify today. I am pleased that the committee is addressing thorny policy issues in the digital asset space, particularly addressing existing regulatory gaps. Of course, there is much work to be done, and I am ready to discuss this legislative proposal with this committee and members of Congress at any time to ensure that it addresses all key considerations for this emerging market.