Chair of the U.S. CFTC: Crypto Regulatory Stagnation, Fear of Becoming Enforcement Target by Regulators

The Chairman of the U.S. Commodity Futures Trading Commission (CFTC), Rostin Behnam, stated on 10/21 at the Securities Industry and Financial Markets Association SIFMA Annual Meeting that the regulation of cryptocurrencies is still stagnant, and the CFTC lacks a specific legislative framework, which limits its oversight of the cryptocurrency market.

Cryptocurrency Regulatory Framework Stalls, CFTC Restricted as Well

Behnam stated that the regulatory framework for the cryptocurrency industry remains stalled, limiting the CFTC's ability to enforce regulations, and he hopes that future Congress and the President can accelerate relevant legislation. Behnam further stated, "I don't see a big breakthrough by the end of the year, but this election is certainly changing the landscape for digital assets and technology."

Behnam emphasized that without relevant legislation, not only is the CFTC hindered in regulating the crypto market, but it also exposes investors to risks. He said, "This makes the market and investors very fragile, leading institutional investors to still be on the sidelines, unable to help integrate cryptocurrencies smoothly with traditional finance."

Financial Industry Fears Enforcement Targets

Bentsen also expressed dissatisfaction within the financial industry. Many broker-dealers feel that the current regulatory environment is unclear, leaving them unsure of how to ensure compliance and whether they can avoid being targeted for enforcement, which has become a common concern in the industry.

CFTC Introduces AI for Market Surveillance

In addition to discussions on regulatory legislation, Behnam also revealed that the CFTC is using AI for market surveillance. He stated that the CFTC is leveraging AI and various data analytics to process the collected data. Furthermore, he mentioned that AI can help the CFTC not only in data analysis but also in detecting market manipulation, cyber attacks, and even reducing litigation. Behnam believes that if AI can be more widely applied, future litigation volumes will significantly decrease.

Fragmented U.S. Regulation is the Main Cause of Stagnation

The United States' fragmented regulation of cryptocurrencies, due to differing views and regulatory directions among multiple regulatory agencies, has led to regulatory fragmentation in the U.S., such as:

• U.S. Securities and Exchange Commission (SEC): Considers cryptocurrencies as "securities," especially in the case of cryptocurrency projects conducting Initial Coin Offerings (ICOs). The SEC has currently filed lawsuits against multiple ICO projects, accusing them of violating securities laws, such as conducting unregistered securities offerings, leading some crypto businesses to exit the U.S. market.
• Commodity Futures Trading Commission (CFTC): Considers cryptocurrencies like Bitcoin and Ethereum as "commodities," having jurisdiction over derivative transactions involving these assets, allowing some regulated Bitcoin futures and options trading.
• Financial Crimes Enforcement Network (FinCEN): Considers cryptocurrency exchanges as Money Services Businesses (MSBs) and requires them to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.

In conclusion, for the U.S. to improve its cryptocurrency regulatory framework in the future, regulatory agencies need to reach a consensus on whether to classify cryptocurrencies as "securities," "commodities," or view the entire industry as "money services businesses." It seems that only after the U.S. presidential election in November will we know the direction.

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