The Chairman of the United States Commodity Futures Trading Commission, Rostin Behnam, told a meeting of the Senate Committee on Agriculture, Nutrition and Forestry on December 1 that his body’s regulations contain “staples that have served markets for decades.” But as the fallout from the FTX collapse has been worked out, notable loopholes in current legislation have come to light, Behnam and the senators agreed.
the senator Tina Smith called the FTX collapse “shocking, not surprising,” saying that future crises will continue to happen as long as regulatory loopholes remain. Behnam noted that the Securities and Exchange Commission has the authority to require basic safeguards, such as the separation of company and client money and the best execution of investment operations.
“We know how to do it”, Behnam said. Nonetheless, he stated in his opening speech:
“Invariably, the questions that we are all forced to answer as regulators are: ‘How did they allow this to happen?’ and ‘How will you prevent this from happening again?’ […] Without new authority for the CFTC, loopholes will continue to exist in a federal regulatory framework, even as other regulators act within their current authority.”
Behnam has been pushing for months to give his agency more authority. He alluded to alleged conflicts between the CFTC and the SEC when he rejected talks about a “seizure of power.” Interagency cooperation is not new and will continue, Behnam said. Expanding the CFTC’s authority is “filling a gap.”
“I think the responsibilities would be the same,” between the SEC and CFTC with comprehensive regulation, and CFTC regulation works well where applicable.
Behnam pointed to crypto derivatives and clearing platform and FTX affiliate LedgerX as an example of successful CFTC regulation. But, “We at the CFTC do not have the legal authority to ask about an unregulated entity” without a whistleblower, Behnam told Sen. Tommy Tuberville. Furthermore, Behnam told him:
“We simply do not have the authority to record cash market exchanges […] This is the void.”
Tuberville also noted that FTX had high governance ratings from rating agencies. They can be sued, Tuberville asked. Oversight of rating agencies is another “potential gap,” Behnam responded.
CFTC Chairman Behnam says DCCPA would have prevented the FTX collapse.
DCCPA would apply to a Bahamian exchange? https://t.co/5RTpBZravM
— Miller (@millercwl) December 1, 2022
CFTC Chairman Behnam says the DCCPA would have prevented FTX’s collapse.
Would the DCCPA apply to a Bahamas exchange?
Senator Kristen Gillibrand, co-author of the Responsible Financial Innovation Act with Senator Cynthia Lummis, told Behnam that there were “a couple of areas where I still see there is risk.” Mergers and acquisitions was one such area. The CFTC paperwork to initiate FTX’s acquisition of LedgerX amounted, at best, to “a notice filing,” Behnam conceded.
There’s also the question of the impact of foreign companies on the United States and US entities doing business abroad, Gillibrand added.
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