US Financial Regulator Urges Lawmakers to Regulate Crypto After FTX's Collapse

Jace Dela Cruz, Tech Times 01 December 2022, 08:12 pm

After the massive collapse of cryptocurrency exchange FTX, a top US financial regulator implored lawmakers on Thursday to swiftly enact legislation creating a legal framework for digital assets, according to a report by Reuters.

Members of the Senate Agriculture Committee questioned Rostin Behnam, chairman of the Commodity Futures Trading Commission (CFTC), during the first of three congressional hearings to investigate FTX's collapse, about whether the commotion might have been avoided with greater accountability.

Behnam claimed that the CFTC is restricted by its incapability to register cash market exchanges.

(Photo : Chip Somodevilla/Getty Images)
WASHINGTON, DC - DECEMBER 01: Commodity Futures Trading Commission Chairman Rostin Behnam testifies about the collapse of the cryptocurrency exchange company FTX before the Senate Agriculture, Nutrition and Forestry Committee in the Dirksen Senate Office Building on Capitol Hill on December 01, 2022 in Washington, DC.

Another FTX Situation

He told lawmakers that if they do not act soon, customers will keep losing money and they will wound up with another FTX situation again in a few months.

Additionally, the regulator informed MPs that he had ten meetings with former FTX CEO Sam Bankman-Fried and had followed up with calls and messages to address the firm's request to clear customer trades.

FTX collapsed due to Coindesk uncovering irregularities in the company's balance records. Bankman-Fried resigned as CEO and the company filed for Chapter 11 bankruptcy in Delaware on Nov. 11.

Benham pointed out that the CFTC lacked the legal jurisdiction to investigate any of FTX's other firms and was unaware of the activities of its subsidiaries.

He has already urged Congress to give the agency more power to oversee digital assets, and he did so again during the session on Thursday, as per Reuters' report.

The CFTC, which normally regulates derivatives markets dominated by big participants like money managers, is authorized to take action against fraud and other misdeeds, but it lacks the authority to control spot markets.

Who Should Oversee the Crypto Market?

Regulators are also arguing over who should be in charge of overseeing the crypto market. Behnam and a large number of Senate Agriculture Committee members have previously agreed that the CFTC ought to play a bigger role in the sector.

However, the US Securities and Exchange Commission is more qualified to regulate markets that involve individual investors, according to SEC Chair Gary Gensler.

He considers the majority of crypto tokens as securities and he anticipates his organization serving as the lead regulator.

Behnam recommended that lawmakers take a break, reevaluate the legislation, and perhaps think about strengthening the clauses relating to financial information disclosure and conflicts of interest following FTX's bankruptcy.

The House Financial Services Committee began a series of hearings on Dec. 13, and more congressional hearings will be held this month to probe FTX's demise.

The committee has stated that it anticipates hearing from Binance, FTX, and its connected trading business Alameda Research.