The Commodity Futures Trading Commission (CFTC) should follow the same regulatory approach to the cryptocurrency market that it has applied to other emerging asset classes, and exercise much tighter oversight.
That’s the view of Commissioner Caroline D. Pham, who told a gathering at the Cato Institute think tank on Thursday of the need for “responsible innovation” and a “compliant” digital asset market.
CFTC Commissioner Urges Tighter Controls on Innovation
Pham’s remarks implied that the current cryptocurrency market is the Wild West. Pham advocated a dialogue with the industry. At the same time, she was vague on how much of a voice crypto firms should really have.
In her pitch for bringing the unruly crypto sector into line, Pham cited her broad experience as a sponsor of the CFTC’s Global Markets Advisory Committee. She recounted an international tour that brought her into contact with many regulators, finance ministries, and central banks.
In Pham’s view, those who make policy in other jurisdictions show a high degree of unity around the need to foster economic growth in a responsible way. Pham contrasted this robust approach with what she sees as a tendency in America to rest on laurels. This is particularly the case, she argued, in the blockchain and digital assets space.
“A ‘wait and see’ approach in the US towards the potential opportunities of blockchain technology and digital assets falls short of the proactive measures needed in this rapidly evolving industry,” Pham argued.
According to Pham, “regulatory clarity” and “robust guardrails” are missing when it comes to crypto regulation
This belief explains Pham’s repeated calls for the CFTC to adopt a much tougher stance on crypto, she said. To act, in other words, like Gary Gensler’s SEC, which has effectively declared war on the industry.
In a Bloomberg interview in July, Gensler’s rhetoric reached new levels of vitriol. He called the crypto sector “a field rife with fraud, rife with hucksters.” Gensler also called for “more cops on the beat.”
Pham Praises Track Record of Pilot Programs
In Pham’s view, pilot programs have proven highly useful to regulators in the past. For example, in 1995, the CFTC undertook a three-year pilot program. Its goal was to test out innovative trading methods and products.
The regulators in that 1995 program set forth trading rules as well as requirements with regard to registration, reporting, and risk disclosure.
On the heels of this successful experiment came another, in April 1998. This new pilot program weighed allowing the purchase and sale of agricultural trade options on some commodities. It, too, tested a new slate of requirements for parties that wished to enjoy greater flexibility in their daily operations.
Then, in June 2010, the CFTC tested out yet another set of rules in response to the “Flash Crash” of May 6, 2010, Pham recalled. The idea here was to gauge the effectiveness of “circuit breakers” for trading of certain stocks via exchanges and FINRA, she said.
Here, US-based exchanges were helpful. Drawing on their own experience, they proposed changes to the rules mandating pauses in trading. Pauses would take effect if the price of a given stock jumped by 10% or more within five minutes.
Originally undertaken on a test basis, the 2010 pilot program worked out so well that the CFTC swiftly codified the rules. Both the market participants, and the regulators, were correct in their belief that these new requirements were in order and would work out in practice, Pham maintained.
Pham’s Next Step: A Cryptocurrency Pilot Program
On the basis of their track record, Pham is a huge advocate of pilot programs. And the next logical step, she argued, is for the CFTC to try one out in the digital assets space.
“As a regulator overseeing the largest financial markets in the world, we have a responsibility to proactively take on new challenges instead of passive observation. That’s why I’m recommending a time-limited CFTC pilot program to support the development of compliant digital asset markets and tokenization,” Pham said.
In theory, such a program will go ahead on a fairly similar basis to those of the past. It will call on market players to share their ideas. She advocated holding a roundtable with stakeholders.
But Pham said that the CFTC, not crypto exchanges and firms, should propose and enact the new rules of the road for the industry. Moreover, her proposal was curiously silent on one critical question.
Namely, just how much real input will players in the market have? And, will their opinions and ideas matter in the end, or can the CFTC, as the ultimate decision-maker, run roughshod over the exchanges and firms and impose whatever rules it wants?
However, Pham did not answer those questions. She called for a “compliant” digital assets market. And some may wonder how much Pham and the CFTC really value the input of the exchanges at all.
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