The US Commodity Futures Trading Commission (CFTC) is considering revisiting its regulatory oversight on risk management requirements for swap dealers and futures commission merchants. The agency has issued an advanced notice of proposed rulemaking that welcomes public comments on the matter. The CFTC Commissioner Christy Goldsmith Romero has highlighted the need for closer examination of the risks that digital assets pose. Romero noted that many brokers have shown an interest in digital assets, and crypto derivatives have been a significant concern. She acknowledged the additional risks that come with unregulated spot markets, citing the collapse of FTX, Terra Luna, Celsius, and other crypto platforms that have resulted in substantial losses. Romero also noted the operational risks and risks associated with rampant fraud and illicit finance in some parts of the crypto markets.

Furthermore, Romero indicated that evolving technologies such as digital assets, artificial intelligence, and cloud services had emerged as areas that carry significant risk. The commissioner pointed out that the custody of digital assets raises a host of issues about safeguarding customer property that were not contemplated in the 2013 risk management rule or the Commission’s customer protection rules for brokers to segregate customer assets from company assets.

CFTC’s Warning to Crypto Clearing Firms

The CFTC has issued a warning to firms providing clearing services for crypto, stating that it has observed increased interest from derivatives clearing organizations (DCOs) and DCO applicants in expanding the types of products cleared and business lines, clearing models, and services offered by DCOs, including those related to digital assets. The agency has also brought charges against crypto firms in the past year, including crypto exchange Binance for offering unregistered crypto derivative trading products in the US.

The failures of banks such as Silvergate Bank and Signature Bank also revealed risks in the industry. Thus, Romero believes the agency must revisit its regulatory oversight, including its risk management requirements. The CFTC has requested public comments on the matter, which are due in 60 days. After reviewing the comments, the agency can decide to issue a formal proposed rulemaking.

The US Commodity Futures Trading Commission is exploring the risks associated with digital assets and is considering revisiting its regulatory oversight on risk management requirements for swap dealers and futures commission merchants. The CFTC Commissioner Christy Goldsmith Romero has emphasized the need for closer examination of the risks that digital assets pose in light of the failures of banks and the collapse of some crypto platforms. The agency has issued a warning to firms providing clearing services for crypto and has brought charges against crypto firms in the past year. The CFTC has requested public comments on the matter, which are due in 60 days, after which it can decide to issue a formal proposed rulemaking.

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