Raphael Warnock Discusses Importance Of Protecting Consumers During Discussion Of Crypto Regulations

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Before the Congressional recess, Sen. Raphael Warnock (D-GA) questioned experts on digital currencies during a Senate Agriculture Committee hearing.

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Transcript

00:00Thank you very much, Madam Chair, and thanks to you and

00:03Ranking Member Boozman and others for your leadership on such

00:08an important issue. These cryptocurrencies and digital commodities

00:16are relatively new, but basic consumer and investor protections

00:20are not. They are still the pillars of a sound financial

00:25system, and I'm glad to see bicameral and bipartisan work

00:31taking place on this. As Senator Booker has already pointed out,

00:34it's difficult to overstate the urgency. But the questions that I

00:39will ask when evaluating any potential legislation are, will

00:43this bill better protect families and investors in Georgia and

00:48across our country? Will it help grow our economy and all of that

00:56with respect to all of the geopolitical challenges that we face?

01:01And, basically, will it help prevent folks from being taken

01:04advantage of? Will we be effective? Is it effective? Or will we

01:08just be able to check the box and say we did something?

01:11So, Chair Benham, critics of proposals to expand the CFTC's

01:17authority into regulating certain cryptocurrencies note that, as

01:21a financial regulator, the CFTC has not needed to focus on

01:26protecting retail investors, and the commission lacks the staff

01:31experience and the expertise to properly protect consumers.

01:39And so around this question of whether what we do will be

01:42effective, what can you say to reassure critics that the CFTC is

01:47up to this task that we all agree is so very important?

01:51MR. BENHAM. Thanks, Senator Warnock. I'm going to go back to

01:54something that I think I've said, because it is extremely

01:57important, and I think very responsive to your question. There

02:01is, in fact, what I believe is a misnomer, a mischaracterization

02:07of what the CFTC's constituency is. It certainly is large

02:11commercial end users, farmers, ranchers, energy providers. It

02:14certainly is large financial institutions. But we do have and

02:18have had for a number of years, with a sort of growing demand, a

02:24fair fairly large retail investor community. They invest in

02:29futures, which are, you know, our main bread and butter

02:33contract. And also, Senator Tupperville mentioned event

02:37contracts, a very retail-oriented marketplace. So from a

02:42regulated market, we do see a lot of retail investors, and we see

02:45that growing. We see growing investor demand and enthusiasm for

02:49all types of financial contracts, something I know that this

02:51committee should care about very deeply.

02:53The second element that I think really is more responsive is

02:56around enforcement. And I mentioned this earlier. If you look at

02:59our enforcement docket historically, not just in the past year,

03:02two years, five years, but historically, the fraud cases that

03:06the CFTC brings are very much related and oriented towards retail

03:13fraud. A significant amount of the fraud, as opposed to

03:16manipulation of markets, are oriented towards retail investors.

03:20And that's because they involve something that's called forex,

03:24foreign exchange, and also physical commodity fraud, which is

03:28typically gold and silver, so metals. And you see this in

03:30commercials and other types of advertisements. So if you look at

03:37our enforcement docket around fraud, it is very much mom-and-pop,

03:41Ponzi scheme, pump-and-dump fraud that has occurred for decades

03:45in financial markets. And because of that, because of that record,

03:48we have actually built a very robust and deep Office of Customer

03:53Education and Outreach and a vast network of partners at the

03:57local and state and federal level in terms of law enforcement to

04:01get, and I'll reference what Senator Fischer said, boots on the

04:05ground at the local level. So I don't want to dismiss. I mean, we

04:09will have work to do. This is a new market. We will have to build

04:12up with resources and personnel. But what I do want to just

04:15recharacterize is this notion, this fallacy that we are not a

04:19retail-oriented regulator. We have a big history on the

04:22enforcement side, and we have a growing constituency on the

04:27investment side. And I think we can build off of both to be

04:29successful in the digital asset space.

04:31Sure. And one of the things that will have to be addressed in

04:36any legislation that is proposed, because there are

04:39multiple financial regulators involved, is the dividing line

04:43between what the SEC should regulate versus the CFTC. And,

04:51you know, that is something that we will be taking a look at.

04:52But with respect to this issue of capacity to do what we are

04:57asking you to do, you requested $399 million for the CFTC's

05:04fiscal year 2025 budget. That funding level would support

05:09725 fulltime staffers to effectively operate and support the

05:14agency in fulfilling its mission. Comparatively, the SEC

05:18requested almost $2.6 billion for 5,703 fulltime staffers. Is

05:30this budget request sufficient for the Commission to take on the

05:34potential new role of protecting consumers and investors who are

05:38trading digital assets? And if not, what funds and staff levels

05:43are necessary?

05:44Thanks, Senator. So as it stands, that budget request, the

05:46$399 for 725 FTE, is specifically for our existing required and

05:53mandated regulatory responsibilities. So not digital assets. This

05:57is for futures, options, and swaps. We have done a fair amount

06:01of analysis. Happy to share it with you that if we were to see

06:04legislation passed that would create authority for the CFTC to

06:06police digital assets, we would have an additional budget request

06:10around certainly resources for personnel and for security

06:14hardware, IT hardware, cyber hardware. So we've been thinking

06:16about it, but certainly it would be above the $399, which you would

06:19expect to be commensurate with the requirements that Congress

06:22applies to us.

06:23Well, thank you. We look forward to seeing that analysis and what

06:26is necessary as we move forward.

06:27Happy to.

06:29Thank you very much. Senator Marshall.

06:34Thank you, Madam Chair. Chairman, welcome back.

Raphael Warnock Discusses Importance Of Protecting Consumers During Discussion Of Crypto Regulations

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