The implosion of the digital-asset exchange FTX shows that U.S. platforms should face heightened scrutiny from the Commodity Futures Trading Commission before being able to list crypto assets, according to one top official at the regulator.
CFTC Commissioner Christy Goldsmith Romero said risks associated with virtual currencies mean that a fast-track process exchanges typically use to list futures isn't sufficient for the asset class. Current rules let exchanges registered with the regulator "self-certify" their products are safe and list them, unless the agency moves to block the plans within 24 hours.
The spectacular blowup of FTX last November has increased pressure on American regulators and lawmakers to step up oversight of the industry. Some proposals that were introduced last year in Congress would give the CFTC an increased role in overseeing trading platforms.
"I urge Congress to avoid permitting newly regulated crypto exchanges to self-certify products for listing, under the current process that limits CFTC oversight," Goldsmith Romero said this week in remarks prepared for an event hosted by the University of Pennsylvania's Wharton School and Carey Law School. "It is critical to institute guardrails against regulatory arbitrage, and that includes prohibiting the use of the self-certification process," she said.
Although FTX's problems didn't emanate from an entity that was overseen directly by the CFTC, Goldsmith Romero said the collapse is a wake-up call. Crypto companies could use the the agency's regulatory framework as an end-run around registering tokens with the Securities and Exchange Commission, she said.
"The CFTC would benefit from greater authority to access certain information on unregulated affiliates of regulated exchanges, with appropriate conditions," said Goldsmith Romero, former inspector general for the Troubled Asset Relief Program.
Goldsmith Romero described FTX's financial entanglements with a constellation of little-known affiliates as a problem the CFTC needs more authority to address. She said even if Congress fails to act, the industry should do more to regulate itself and root out bad actors.
"If the digital-asset industry wants to regain any amount of public trust, it has some work to do," she said.
CFTC Chairman Rostin Behnam said after FTX's liquidity crisis and bankruptcy that his agency lacked the authority to look beyond the firm's U.S. unit, which was registered with the regulator.
In her remarks, Goldsmith Romero also called out venture capital firms, pension fund investors, lawyers, compliance professionals and celebrities working with the crypto industry for needing to do more due diligence.
"Gatekeepers themselves also need to step up, and call for compliance, controls, and other governance, without allowing the promise of riches and the company's marketing pitch to silence their objections to obvious deficiencies," she said.
