At a hearing of the Senate Agriculture Committee on December 1, 2022, Congress was called to act quickly to pass the CFTC’s law to prevent further loss of funds after the FTX collapse.
The commission asked Rostin Behnam, head of the Commodity and Futures Trading Commission (CFTC), to clarify what led to FTX’s swift unraveling.
They also discussed how to protect U.S. customer funds going forward. The committee was quick to condemn FTX’s lack of risk management and argued that swift regulation was necessary to ensure such a crash would not happen again.
Sen. Debbie Stabenow (D-MI), chair of the committee, said she hopes the Digital Goods Consumer Protection Act of 2022 will lead to stricter regulation of the crypto industry under the mandate of the CFTC.
Stabenow co-authored the bill in August 2022 with Sen. John Boozman (R-Arkansas). Importantly, she added, the CFTC will not be the only agency regulating crypto. She emphasized:
The clarification came after SEC Chairman Gary Gensler challenged the bill. Gary Gensle believes that the CFTC-centric bill does not do enough to protect investors.
The U.S. Senate Agriculture Committee oversees the CFTC, which oversees derivatives and commodities markets in the United States.
On November 11, 2022, FTX and several of its affiliated entities filed for bankruptcy protection. Prior to the filing, FTX failed to honor approximately $5 billion in customer withdrawals approximately five days earlier. FTX previously worked with the CFTC to register LedgerX, a U.S.-based derivatives exchange and clearinghouse, Benham said.
He said the company’s operations remained solvent for the foreseeable future. Additionally, he argues that the CFTC played a key role in securing LedgerX from bankruptcy of 130 FTX-linked entities.
“The lesson here is that clear, thoughtful and comprehensive regulatory work can protect customers and prevent the kind of incident that happened to other FTX entities,” Behnam noted.
“At the CFTC, we lack the authority to fully regulate the digital asset market, and in order to prevent this from happening again, we must obtain appropriate authorization from Congress.”
Behnam dismissed the notion that the CFTC is a light-hearted regulator relative to other federal agencies. He noted that the agency has issued $2.5 billion in fines in 2022.
Although many people in the industry pointed to the lack of regulatory transparency as the reason for FTX’s collapse, Crypto industry skeptic and former SEC official John Reed Stark said that the Crypto industry’s call for regulatory transparency is nothing more than to obtain approval for risky speculation.