Streamlining Crypto Regulation
The U.S. Commodity Futures Trading Commission (CFTC) recently made significant adjustments to its regulatory framework by withdrawing two important staff advisories related to cryptocurrency. This decision signifies a shift in the CFTC’s approach, reflecting the evolving landscape of the crypto market.
Details of the Withdrawn Advisories
The first advisory, known as Staff Advisory No. 18-14, was initially released in May 2018. It provided guidelines for the listing of virtual currency derivative products. Key requirements included the need for reporting firms to maintain close coordination with the CFTC’s surveillance team and a large trader reporting threshold set at five bitcoins (or an equivalent value in other cryptocurrencies). In a letter issued on Friday, the CFTC stated that “additional staff experience” and “increasing market growth” had rendered this advisory outdated and unnecessary.
The second advisory, Staff Advisory No. 23-07, was released in May 2023 and focused on the risks associated with the expanding clearing of digital assets by designated clearing organizations (DCOs). This guidance underscored the importance of compliance with CFTC regulations, particularly in light of heightened cyber and operational risks associated with digital assets. The advisory was rescinded to ensure fair regulatory treatment for crypto-related derivatives, indicating that the CFTC aims to maintain consistency in its regulatory approach across all product categories.
Aligning with Industry Changes
The CFTC’s decision to withdraw these advisories comes amid broader changes in regulatory practices within the U.S. financial landscape. The U.S. Securities and Exchange Commission (SEC), which shares regulatory oversight with the CFTC, has also revamped its approach to cryptocurrency under the leadership of Acting Chair Mark Uyeda. The SEC has established a Crypto Task Force, engaging more proactively with the industry and easing its stance on several lawsuits that were initiated under former Chair Gary Gensler.
A Streamlined Enforcement Strategy
While the SEC’s rapid transformation has garnered significant attention, the CFTC is equally committed to refining its regulatory strategy. Acting Chair Caroline Pham has emphasized a “back to basics” approach, which includes not only the withdrawal of the two crypto advisories but also a broader overhaul of the agency’s enforcement division. This restructuring involves consolidating various specialized enforcement teams into just two, with the goal of creating a more efficient regulatory environment and moving away from a “regulation by enforcement” mentality.
Expert Insights on CFTC’s Direction
Liz Davis, a partner at Davis Wright Tremaine LLP and a former chief trial attorney in the CFTC’s Division of Enforcement, views the rescindment of these advisories as reflective of Pham’s foundational approach to agency management. However, she also notes that these changes might be indicative of a larger organizational restructuring within the CFTC.
“They’re likely undergoing a reorganization in light of developments with the Department of Government Efficiency (DOGE),” Davis commented. She added that Pham’s efforts to centralize operations could facilitate a more effective restructuring process.
Conclusion
The withdrawal of these two crypto advisories signals a new phase for the CFTC as it adapts to the maturity of the cryptocurrency market. By streamlining its guidance and focusing on fair treatment for crypto derivatives, the CFTC aims to cultivate a regulatory landscape that fosters growth and innovation while maintaining the integrity of market practices.
