On February 9, 2022, CFTC Chairman Rostin Behnam provided testimony to the US Senate Committee on Agriculture, Nutrition, and Forestry (Senate Ag Committee) at a hearing examining regulation of digital assets. Behnam's testimony emphasized the CFTC's focus in mitigating risk to individual investors and promoting market integrity as core reasons why the CFTC should be a central player in any cryptocurrency regulatory regime.

Chairman Behnam noted that the CFTC is the primary regulator of the US derivatives markets in which commodity futures, swaps, and options are traded. He explained, however, that while the CFTC does not have direct statutory authority to regulate cash markets, the CFTC does have fraud and manipulation enforcement authority over commodity spot markets. Chairman Behnam noted that while the CFTC's core responsibility is regulating the commodity derivatives market, there are several unique elements of the digital asset commodity cash market that distinguish it from other cash commodity markets, which would make CFTC oversight appropriate.

The Chairman observed that there is an urgent need for Congress to grant additional authority and resources to the CFTC to better monitor the rapidly growing digital currency market, which he stated is opaque because US regulators currently have limited regulatory authority. The Chairman pointed out that the CFTC's lack of authority to oversee digital asset markets could be contributing to increasing fraud within that digital market space.

Chairman Behnam explained further that the US digital asset market does not fall under a single comprehensive regulatory regime but rather that the CFTC along with other federal agencies and state regulators have all been responsible for establishing the current existing, and very incomplete, regulatory environment. According to Behnam, the collective regulating oversight capabilities of US federal agencies and state regulators, while generally complimentary, often rely on the development of cooperative arrangements.

Behnam further testified that US regulators have so far focused most of their crypto regulatory efforts on stablecoins, which lack proper transparency around the stability of their reserves making them susceptible to risks (see Legal Update, CFTC Settles Charges Against Stablecoin Issuer Tether and Related Crypto Platform Bitfinex for CFTC Violations). While the CFTC has previously levied charges against major crypto players, Behnam testified that it has been hard for the CFTC to supervise crypto exchanges operating outside the US (see Legal Update, CFTC and FinCEN Settle Charges Against Offshore Cryptocurrency Derivatives Exchange BitMEX).

The Chairman also stated that the CFTC will continue to use its existing enforcement authority to its fullest extent to protect customers from fraud and manipulation, but he noted that the new challenges in the digital asset space are likely to extend beyond the confines of the Commodity Exchange Act (7 U.S.C. §1 et seq.) under which the CFTC was created. The Chairman also remarked that the nature of innovation in digital assets results in impacts to more than just the financial markets, with several government agencies considering how digital asset technology impacts federal policy related to payments, custody, illicit activity, national security, and a number of other issues.

Behnam's testimony followed his February 8, 2022 response to a January 12, 2022 letter from Congress requesting information from the CFTC on the scope and size of the digital asset markets, the risks and potential benefits of these emerging technologies, and the potential role of the CFTC in regulating the digital asset markets.

For additional information on digital assets and virtual currency see Cryptocurrency and Virtual Currency Regulatory Tracker.