Sens. Cynthia Lummis and Kirsten Gillibrand introduced June 7 the Responsible Financial Innovation Act, a bipartisan bill that will create a complete regulatory framework for digital assets. One section that caught the attention of many observers is that the bill assigns regulatory authority over digital asset spot markets to the Commodity and Futures Trading Commission (CFTC).
The senators said in a statement that “most digital assets are much more similar to commodities than securities, so the bill gives the CFTC clear authority over applicable digital asset spot markets, which aligns well with their current purview over other commodity markets. Digital assets that meet the definition of a commodity, such as bitcoin and ether, which comprise more than half of digital asset market capitalization, will be regulated by the CFTC.”
For other digital assets that are considered securities, the Securities and Exchange Commission (SEC) would have authority.
In light of this potential expansion of the CFTC’s powers to oversee digital assets, the Subcommittee on Commodity Exchanges, Energy and Credit House Agriculture Committee held a hearing June 23 with CFTC Director of the Division of Market Oversight Vince McGonagle to learn more about the agency’s capabilities on this space.
From the beginning, McGonagle stated not only the capacity of the agency to supervise digital assets, but also that the agency has jurisdiction to do so.
“Digital assets have been broadly determined by the CFTC and federal courts to be commodities under the Commodity Exchange Act,” he said in his testimony, adding, “the CFTC has broad regulatory oversight over any futures, options, and swaps listed by designated contract markets.”
He also explained how since 2017 the CFTC has regulated exchange listed futures contracts on digital assets, particularly with bitcoin derivative contracts for trading.
McGonagle also said he wants to leverage the good relationship that the agency seems to have with the crypto community and the transparency it has provided, as opposed to the SEC, which has been criticized by the crypto community.
On this issue, and talking about the first contracts on digital assets, he noted, “though the commission did not … seek public comment at the time [2017], the CFTC published two documents in connection with these self-certification submissions to provide the public with background information on the CFTC’s oversight of, and approach to, virtual currency futures markets. A few months later in 2018, … staff clarified their priorities and expectations when reviewing new virtual currency derivatives to be listed on a designated contract market or to be cleared by a derivatives clearing organization.”
The second point McGonagle stressed was that the agency is capable of conducting enforcement actions and not only regulatory or supervisory tasks. Many of the wrongdoings in the crypto space are related to fraud or manipulation, and the CFTC has been active investigating and addressing this type of misconduct, he argued.
Since 2014, the CFTC has “aggressively exercised its enforcement authority bringing more than 50 enforcement actions,” he said. Most recently, in 2021 and 2022 the agency filed cases charging retail fraud and allegations for making false or misleading statements involving digital assets.
The last point he made was to prove that the agency responds well when it is tasked with new responsibilities. He referred to 2010, when Congress tasked the CFTC with creating an oversight system for the over-the-counter swaps market after the 2008 financial crisis and how thanks to the agency’s work, the swap market now benefits from “transparency, enhanced customer protections and promoted competition.”
Although McGonagle didn’t specifically request more powers for the CFTC to oversee digital assets, he conveyed the message that if Congress decides to do so, the agency will be ready.
Read more: Bill Giving CFTC Regulatory Control Would Reshape Crypto
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