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CFTC to Take 'Do No Harm' Approach on Crypto Regulation

The chairman of the U.S. Commodity Futures Trading Commission (CFTC) has spoken of the need for balance and a “do no harm” approach when regulating cryptocurrencies.

In a written testimony presented to the Senate Banking Committee today, J. Christopher Giancarlo said that in this “new digital era” for the financial markets, cryptocurrencies have brought “paradigm shift” in how the world views payments and financial processes, and that ignoring such innovation “will not make them go away, nor is it a responsible regulatory response.”

Giancarlo continued:

“‘Do no harm’ was unquestionably the right approach to development of the Internet. Similarly, I believe that ‘do no harm’ is the right overarching approach for distributed ledger technology. … With the proper balance of sound policy, regulatory oversight and private sector innovation, new technologies will allow American markets to evolve in responsible ways and continue to grow our economy and increase prosperity.”

That’s not to say the CFTC will sit back and do nothing, however. The commission chair spelled out how his agency has previously taken civil enforcement actions against several “virtual currency Ponzi schemes,” including My Big Coin Pay Inc, The Entrepreneurs Headquarters Limited and Coin Drop Markets.

These actions confirm, he said, that the CFTC, in conjunction with the SEC and other financial enforcement agencies, will protect investors and “aggressively prosecute” cryptocurrency schemes that engage in fraud and manipulation.

Giancarlo further addressed the recent arrival of self-certified bitcoin futures products, which have seen some criticism from the traditional futures sector.

He argued that it is the role of the futures exchanges and futures clearinghouses, themselves, and not the CFTC, to address concerns over new product self-certifications.

However, the commission has added an additional element to the Review and Compliance Checklist for cryptocurrency futures products.

Giancarlo explained this entails “requesting DCMs and SEFs to disclose to CFTC staff what steps they have taken in their capacity as self-regulatory organizations to gather and accommodate appropriate input from concerned parties, including trading firms and FCMs.”

Additionally, the CFTC will take a “close look” at governance around such products and develop recommendations for possible further action, he added.

J. Christopher Giancarlo image via CoinDesk archive

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CFTC Beefs Up Bitcoin Futures Review Process

The Commodity Futures Trading Commission (CFTC) is developing a “heightened review process” for cryptocurrency futures though it will continue to allow exchanges to self-certify products, Chairman J. Christopher Giancarlo announced last week.

As reported by Reuters, Giancarlo introduced a checklist during a conference speech in Florida pertaining to Designated Market Contracts (DMCs) and Derivatives Clearing Organizations (DCOs). The aim is to assist regulators as exchanges introduce new products around cryptocurrencies into the market.

The chairman’s speech came after some pushback tied to the CFTC’s handling of the December launch of bitcoin futures by the Cboe Global Markets and the CME Group, after which the Futures Industry Association (FIA) expressed concern over potentially having to pay for outstanding bitcoin futures contracts caused by the cryptocurrency’s volatility. The Association claimed it wasn’t sufficiently included in the process and criticized the Commission for allowing exchanges to self-certify their futures products.

Giancarlo’s checklist requires that DMCs set “exchange large trader reporting thresholds at five bitcoins or less”. It also mandates that they must enter into “information sharing agreements with spot market platforms to allow access to trade and trader data” in addition to agreeing to frequent communication with the CFTC regarding trade activities.

Beyond such measures, the CFTC will leave the self-certification process alone, according to Giancarlo.

He was quoted as saying:

“The CFTC’s current product self-certification framework is consistent with public policy that encourages market-driven innovation that has made America’s listed futures markets the envy of the world. Whatever the market impact of bitcoin futures, I hope it is not to compromise the product self-certification process that has served so well for so long”.

Others have been scrutinizing the process as well, including some members of the U.S. Congress.

Yesterday, top Senate Agricultural Committee members sent a letter to Giancarlo requesting information on the CFTC’s oversight of bitcoin futures and options markets. The senators specifically requested information regarding the Commission’s market surveillance and its implementation of safeguards against bitcoin’s volatility.

“American taxpayers deserve strong safeguards against fraud, manipulation, and abusive practices in the futures and options markets,” the letter stated. “The CFTC plays a critical role in protecting customers and the markets from harm.”

Image via Shutterstock

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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

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SEC, CFTC Chiefs Eye Closer Scrutiny of US Cryptocurrency Industry

Two U.S. financial regulators are increasing their agencies’ commitment to bringing closer scrutiny to the country’s cryptocurrency industry.

In a Wall Street Journal op-ed published yesterday, both the Securities and Exchange Commission (SEC) ands the Commodity and Futures Trading Commission (CFTC) voiced that they are devoting a significant portion of resources to monitoring the industry. And along with other authorities, they will continue to stamp down on fraudulent activities in the market.

The article was co-written by Jay Clayton and J. Christopher Giancarlo – chairs of the SEC and CFTC, respectively – and is the latest public statement from the financial regulators indicating the increasingly strident efforts being made to oversee the industry.

In July last year, the SEC issued the notable announcement that the agency may consider tokens issued during initial coin offerings (ICO) as securities that must be registered with the agency.

Yet, in the WSJ piece, Clayton and Giancarlo warned those who might try and circumvent the guidance, saying:

“The SEC is devoting a significant portion of its resources to the ICO market … Market participants, including lawyers, trading venues and financial services firms, should be aware that we are disturbed by many examples of form being elevated over substance, with form-based arguments depriving investors of mandatory protections.”

Further, cryptocurrencies are now being “promoted, pursued and traded as investment assets,” while their much-touted utility as an efficient medium of exchange now a “distant secondary characteristic,” they added.

The comments are also in line with recent moves by the SEC in halting ICO activities and filing charges against their organizers. Just last week, the CFTC, which treats cryptocurrencies as commodities, has also notably brought up legal cases to sue allegedly fraudulent cryptocurrency investment schemes.

In addition, Clayton and Giancarlo also voiced support in the article for policies that seek to review existing laws to ensure they can efficiently regulate activities pertaining to cryptocurrency.

“Many of the internet-based cryptocurrency-trading platforms have registered as payment services and are not subject to direct oversight by the SEC or the CFTC. We would support policy efforts to revisit these frameworks and ensure they are effective and efficient for the digital era,” the regulators concluded.

US Capitol image via Shutterstock

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CFTC Chair: Cryptocurrencies 'Unlike Any Commodity' Agency Has Seen

Cryptocurrencies have proven to be a unique challenge for the Commodity Futures Trading Commission (CFTC), according to the agency’s chairman.

In a statement made yesterday, J. Christopher Giancarlo, remarked on the risks posed by cryptocurrencies and initial coin offerings (ICOs).

His comments were a response to Securities and Exchange Commission (SEC) chairman Jay Clayton, whose comments on cryptocurrencies, also made yesterday, followed the latest enforcement action by the that agency.

Giancarlo commended his SEC counterpart for encouraging market participants and investors to “recognize risks and legal responsibilities they have regarding cryptocurrencies and [ICOs].”

He went on to say:

“I have said consistently that virtual currencies are unlike any commodity that the CFTC has dealt with in the past, and I know they pose challenges for the SEC as well.”

Notably, Giancarlo added that the two agencies are in “regular communication” with each other regarding both digital currencies and ICOs, highlighting the degree of inter-agency cooperation within the U.S. government on issues around cryptocurrencies.

Giancarlo further noted that his agency cannot effectively regulate cryptocurrencies, saying “the relatively nascent underlying cash markets and exchanges for bitcoin remain largely unregulated markets over which the CFTC has limited statutory authority.”

He concluded with a warning for investors, saying, they should “be aware of the potentially high level of volatility and risk in these markets.”

In his Dec. 11 comments, Clayton stated that the SEC would examine any asset impacts to the U.S. securities market, including cryptocurrencies if they fit the profile for securities.

Image by Michael del Castillo for CoinDesk

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CFTC Chair: Embracing Blockchain Is in the 'National Interest'

Blockchain is in America’s “national interest.”

That’s according to J. Christopher Giancarlo, chairman of the Commodity Futures Trading Commission (CFTC), who issued the bold proclamation in remarks at a gathering of government technology executives in Washington, D.C. Wednesday morning.

But while the blockchain industry has been encouraging regulators and government agencies to embrace the technology for years, this acknowledgment might have more oomph behind it. For one, unique to this statement was the size and caliber of the audience receiving it – in attendance was a group of roughly 270 leaders from over 40 U.S. government agencies.

“Distributed ledger and blockchain technologies … are going to challenge orthodoxies that are foundational to our financial infrastructure,” Giancarlo said.

Giancarlo continued:

“Everything we do has been digitized. The one thing that has not yet been digitized is regulation. We’re still very much an analog regulator of digital markets.”

And most importantly, Giancarlo stressed that it is imperative that U.S. regulatory structures catch up with the fast-moving digital economy.

Overcoming hurdles

Elsewhere in the talk, Giancarlo argued that government bodies must go beyond just understanding blockchain by finding ways to utilize the technology in an agency or regulatory setting.

“Whether it’s the promise of blockchain-enabled digital identities, improved regulatory reporting and surveillance, greater efficiency in clearing and settlement processes, more transparent flow of information – these innovations hold promise in benefiting the American public,” he said.

One “perfect example,” Giancarlo went on, would be using a distributed ledger system to implement the rule set put forth by the Dodd-Frank financial reform law. Passed in 2010, the legislation requires financial institutions to report swap trade info to a central repository.

The intent of the rule is to provide more transparency into a financial institution’s exposure to other banks and better assess systemic risk. But because of technological limitations, that initiative has hit stumbling blocks – issues that Giancarlo believes blockchain could overcome.

But while Giancarlo has mentioned blockchain’s ability to cut through the financial system’s complexity in the past, his statements at the event give a more detailed view of just how the technology could help.

Striking a balance

With all the optimism, Giancarlo did note that the digitization of modern financial markets should be a “delicate balance” of innovation and investor protections.

“Current enthusiasm for certain cryptocurrencies shouldn’t blind investors and regulators to the many risks that are evolving in this space,” he said.

This is particularly notable in that the CFTC recently found certain crypto tokens to be commodities, and earlier this year, granted cryptocurrency derivatives clearinghouse LedgerX a license to trade commodities.

Giancarlo was quick to say, though, that the agency has no intention of overstepping its jurisdiction by defining how all tokens should be classified.

Under Giancarlo’s leadership, the CFTC has brought blockchain into the fold through its blockchain research and development initiative LabCFTC. While this approach means boundary-pushing is inevitable, he says such dynamics are healthy and necessary to modernizing the legacy regulatory framework.

Giancarlo concluded:

“That makes sense because our rules weren’t designed for this technology. In fact, our rules were designed for markets that don’t exist anymore, and we need to update them.”

J. Christopher Giancarlo image via Aaron Stanley for CoinDesk

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