The CFTC published Monday (Oct. 5) an advance notice of proposed rulemaking outlining two interconnected regulatory frameworks that could allow crypto exchanges to register as federally supervised “crypto asset markets.” The move follows the collapse of the Clarity Act, which fell short in the Senate last month after Congress spent much of the past two years debating how to divide responsibility for digital assets among federal regulators.
Because the notice is an ANPRM, the CFTC is seeking public input before drafting formal rules. The public will have 60 days to comment after the notice is published in the Federal Register.
The proposal consists of Regulation Crypto Asset Transactions, or Regulation CTX, and Regulation Crypto Asset Markets, or Regulation CAM, Decrypt reported Monday.
Regulation CTX would rely on an existing provision of the Dodd-Frank Act requiring retail commodity transactions involving leverage, margin or financing to occur on a CFTC-registered exchange unless the commodity is actually delivered to the purchaser.
The agency is considering an expansive interpretation of that authority, according to the report. Merely offering customers leverage, including through standard onboarding documents or terms of service, could potentially subject even fully paid crypto transactions to CFTC oversight when the assets remain on an exchange’s internal books rather than being transferred to a customer’s wallet.
That would make “actual delivery” an important dividing line between state and federal regulation, the report said. The CFTC suggested actual delivery could require customers to control their private keys. Decentralized or on-chain protocols that transfer tokens directly to customer wallets would generally satisfy that standard.
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Regulation CAM, meanwhile, would create a new “crypto asset market” registration category modeled on the designated contract market framework governing futures exchanges, per the report.
Transactions on registered crypto asset markets would generally flow through futures commission merchants subject to anti-money laundering requirements, according to the report. Leverage could be supplied only by those intermediaries or sponsoring banks, although exchanges could register simultaneously as brokers and clearinghouses.
The CFTC is also considering proof-of-reserves requirements and standards intended to prevent exchanges from listing tokens susceptible to manipulation, the report said. The framework would not necessarily federalize the entire crypto spot market. Exchanges that do not offer leverage could continue operating under state money-transmitter licenses.
CFTC Chairman Michael Selig said in a Monday press release that the proposed framework is “designed to prevent, rather than only prosecute after the fact, fraudulent schemes such as FTX.”
The notice also marks a departure from the agency’s previous enforcement-focused approach, characterizing President Joe Biden-era cases involving Kraken, Ooki DAO and Uniswap as “regulation by enforcement,” Decrypt reported.
The initiative effectively puts the CFTC in the position of using its existing statutory authority to fill part of the regulatory gap Congress had sought to address through the Clarity Act.
The agency sent the framework to the White House for review in September, shortly after the legislation failed in the Senate, the report said. Selig had warned in August that the CFTC would develop its own crypto rules if Congress did not act.
The Securities and Exchange Commission is proceeding on a parallel regulatory track, according to the report. It proposed its own Regulation Crypto Assets in August and last month unveiled an innovation exemption for tokenized stocks, suggesting federal regulators are moving ahead administratively even without the comprehensive market structure legislation the crypto industry had sought from Congress.
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