Boozman Grills CFTC Chairman: Are You 'Not Equipped’ To Hand Digital Commodity Self-Certification?

4 months ago

Before the Congressional recess, Sen. John Boozman (R-AR) questioned the CFTC Chairman on digital commodities during a Senate Agriculture Committee hearing.

Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:

https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript

Stay Connected
Forbes on Facebook: http://fb.com/forbes
Forbes Video on Twitter: http://www.twitter.com/forbes
Forbes Video on Instagram: http://instagram.com/forbes
More From Forbes: http://forbes.com

Transcript

00:00Mr. Chairman, as you know, multiple DCMs currently list futures contracts with an underlying

00:06digital asset, all of which have been listed through the self-certification process without

00:13CFTC intervention, so the underlying digital asset clearly didn't cause an issue. Despite

00:20that, some think CFTC is too weak and ineffective to handle spot digital commodity self-certification.

00:27Are they right? Is the CFTC not equipped? Are they not capable to handle spot digital

00:34commodity self-certification?

00:35Senator, thanks for the question. I'm going to say we are certainly equipped and we are

00:41certainly capable. I would just reiterate what I've said multiple times to your colleagues.

00:46If this committee acts and provides additional authority to regulate these markets, we would

00:51certainly need additional funding to do it. Otherwise, from a policy and expertise perspective,

00:59we are as well positioned as anyone.

01:02Very good. Thank you. Certainly, that makes sense that you need the resources if you are

01:07moving in that direction. Some have suggested the SEC should first determine whether something

01:14is a security and then CFTC should follow up with its own determination. If the two

01:20disagree, the CFTC could sue the SEC. A similar process exists for novel derivatives products,

01:28but many in the industry tell us it's an unworkable process that has largely killed those markets.

01:36I'm afraid such a framework would also stifle crypto markets, which is a terrible outcome.

01:42As you well know, this committee doesn't have jurisdiction over SEC, so should Congress

01:47put the CFTC in the losing position of having to sue the SEC every time they disagree?

01:54Senator, a short answer to that question is that would be obviously a very difficult position

01:58and one, practically speaking, that is unlikely. The self-certification process, as you point out,

02:06is a well-worn process. It's about 24 years old right now. I did some work myself when I was a

02:12commissioner looking at listing of products prior to the self-certification authority and after

02:17the self-certification authority. The numbers are actually quite staggering, to use that word

02:23again, in terms of listed products. It's an efficient system. It's one that actually

02:29forces both the market participant, the exchange, and the regulator to be involved. It's not just

02:34driven by the market participant. We do engage. It's checking boxes. It's making sure they're

02:39complying with our rules and our regulations, but it is an efficient system. I think that should

02:44be a model, as you consider legislation, to use for digital assets as well.

02:51Good. Thank you. To my knowledge, Congress has never held a hearing solely on decentralized

02:56finance, not once, yet some would want to regulate in such a way to make it very difficult

03:05for the industry. The IRS just excluded DeFi from their new broker rule and the EU has punted

03:13the rest of the world realizes the issue needs more studying.

03:17Instead of having CFTC spend resources as something the agency has no expertise in,

03:23shouldn't we focus on regulating centralized exchanges?

03:29I think at this point, Senator, given what we've observed, what I've observed over the

03:34course of seven years, the priority should be centralized exchanges. We've brought a few

03:39enforcement cases around DeFi. We've engaged with market participants, seen this area evolve,

03:46certainly, but I think the larger challenge right now as it relates to customer protections,

03:52fraud manipulation is around these centralized exchanges. If I were to make a recommendation

03:57is to focus on that particular area right now, because that gap is really the one that's most

04:04concerning to me. DeFi is more challenging. We've heard our fair share of complaints from

04:10the industry, but I am a firm believer that there is a regulatory nexus for DeFi, but perhaps we

04:17have to take a unique look at it given the unique nature of DeFi. It may not be exactly what we do

04:24with traditional centralized exchanges, but the notion or idea that it should live in a regulatory

04:29vacuum, I disagree with that. All that to be said is, I think it demands more thought, consideration,

04:34and discussion between both the regulator and this committee before any further steps are taken.

04:40Good. Thank you. Congress was clear that the CFT's jurisdiction to regulate swaps outside

04:45the U.S. is limited to those that have direct and significant connection with the U.S.

04:50That boundary is important because unfettered regulatory overreach can lead to foreign

04:55retaliation, which hurts U.S. market participants and users. You've expressed today, and rightfully

05:03so, the CFT's limited resources, so why should it be the world's crypto police?

05:10Senator, we should certainly not be the world's crypto police. I think I mentioned to Senator

05:14Gillibrand, I believe, that I serve as vice chair of IOSCO. I put it in my statement as well.

05:20I've seen multiple jurisdictions across the globe, Asia, Middle East, Europe, UK, South America,

05:26in the course of three years as vice chair, go from pilot programs to well-built regulatory

05:32systems. From an enforcement, customer protection side, this delta between the U.S. and the rest of

05:38the world is not healthy. I think from your perspective, as we think about innovation and

05:42economic development, it should be concerning that we're so far behind. I think we have the

05:47benefit of being the largest market in the world, and we don't necessarily have to move first,

05:51but we do have to move, and I think this is a good step forward.

05:54In terms of our nexus with non-U.S. participants and how far our reach should go,

05:59you raise a very important point and one that this committee thought about very deeply just 10

06:03or 15 years ago with the swaps market and this nexus, the significant, the nexus test, which

06:11is in our statute. It's challenging, but ultimately, I think, at its root, what we have to focus on is

06:18how are, if at all, U.S. customers impacted or affected, and if they are affected, then I think

06:24there is a clear nexus between what an entity, individual organization is offering to a U.S.

06:30customer regardless of their location, whether it's in the U.S. or obviously, to the point of

06:34your question, outside of the U.S. So we have to think about it. I think our consistent baseline

06:40or foundation should be that nexus with U.S. customers and whether or not they're being

06:45offered products and ultimately defrauded or manipulated, but if we can find that nexus,

06:51and it's not necessarily always black and white. There's some areas that are gray of where

06:55affiliates or subsidiaries are set, but we've done a good job, I think, by and large over the past 10

06:59years implementing Dodd-Frank and Title VII. We've done this in other markets over the course of

07:03decades, and I feel pretty strongly we could do the same in this particular market.

07:09Well, again, thank you very much for being here. We appreciate your leadership. You've got

07:13a lot of responsibility, and again, we just appreciate you stepping up to the plate and

07:19providing the leadership that's needed. Thank you, Senator. Thank you so much. I want to do

07:24one follow-up question because Senator Bozeman raised a really important issue that we are

07:30struggling with here with SEC and CFTC.

Boozman Grills CFTC Chairman: Are You 'Not Equipped’ To Hand Digital Commodity Self-Certification?

Category

Transcript

Recommended