CFTC best placed to regulate digital assets, commissioner says

The US Commodity Futures Trading Commission is “absolutely” the right regulator to oversee cryptocurrencies, according to the agency’s newest commissioner, Caroline Pham.

Regulators in the US are engaged in a tug-of-war over who should police the market for digital assets. The CFTC already regulates crypto futures and has determined that popular tokens such as Bitcoin, Ether and Litecoin are commodities falling within its jurisdiction.

The Securities and Exchange Commission argues that many tokens meet the legal definition of securities and has been beefing up the enforcement team tasked with investigating abuses in the market.

A bill introduced in the US House of Representatives last week would settle the matter in the CFTC’s favor. The Digital Commodity Exchange Act defines most tokens as “digital commodities” and authorizes the CFTC to regulate trading in these instruments.

Pham, who was sworn in as a CFTC commissioner on April 14, said it was the right time to establish a regulatory framework for digital assets and made no secret of her view that the CFTC was best placed to police the market.

“The CFTC has global jurisdiction,” she said in her first public appearance as a commissioner. “Most of the largest firms in the world are directly registered with the CFTC as swap dealers; the CFTC has direct oversight over them; they can fine them a billion dollars. There are not many regulators that have that.”

Pham was speaking at Cryptocurrency Trading Forum USA in New York on May 4, a conference held by Risk.net, WatersTechnology’s sister publication.

There is a solution here, but of course that’s something that is going to require coordination across the US regulators.

Caroline Pham, CFTC

Pham said a precedent for regulating crypto assets as commodities had already been established through the CFTC’s recent enforcement actions.

“In the CFTC’s enforcement actions, we have actually said that Bitcoin, Ether and Litecoin are digital assets under the CFTC’s jurisdiction,” she said.

Pham also argued that the CFTC’s “principles-based, flexible regulatory framework” means that it can “respond and adapt to new developments more quickly” than other agencies.

Among the first items on Pham’s desk at the CFTC is a proposal by Bahamas-headquartered crypto exchange FTX to open an onshore crypto-derivatives clearing house in the US that would disintermediate traditional brokers.

Speaking at a Futures Industry Association conference in Boca Raton in March, CFTC chairman Rostin Behnam described the proposal as “innovative” and said the agency would evaluate it carefully.

Pham acknowledged that regulating cryptocurrencies would be a multi-agency effort, even if the CFTC takes the lead. In March, US president Joe Biden signed an executive order directing government agencies to explore ways to develop crypto regulations that protect consumers and maintain market stability.

“There is a solution here, but of course that’s something that is going to require coordination across the US regulators,” said Pham, who spent seven years as a senior compliance lawyer at Citi before being nominated to the CFTC.

Prior to joining Citi, Pham was an advisor to Scott O’Malia, chief executive of the International Swaps and Derivatives Association, when he was a commissioner at the CFTC.