Following the spectacular collapse of cryptocurrency exchange FTX, a top U.S. financial regulator urged lawmakers on Thursday to act immediately to establish a regulatory framework for digital assets.
Members of the Senate Agriculture Committee questioned Rostin Behnam, chairman of the Commodity Futures Trading Commission, on whether the turmoil could have been avoided with better oversight in the first of several congressional hearings to examine FTX’s failure.
According to Behnam, the CFTC is limited by its inability to register cash market exchanges.
“That’s what concerns me. This is the gap that exists,” he told lawmakers. “If we don’t do something, customers will continue to lose money and we’re going to be right back here in a couple months.”
In addition, the regulator informed Lawmakers that he had 10 meetings with former FTX CEO Sam Bankman-Fried and had followed up with calls and texts to discuss the company’s application to directly clear customer trades.
On Nov. 11, days after traders pulled $6 billion from the platform and rival exchange Binance abandoned a rescue deal, FTX filed for bankruptcy and Bankman-Fried resigned as CEO.
LedgerX, a CFTC-regulated FTX subsidiary that was omitted from the bankruptcy proceedings, has since pulled the plug on its clearing house application.
Behnam from CFTC said that LedgerX’s customer property is still safe and that it has the resources necessary to “continue operating for the forseeable future.”
The CFTC, he said, had no legal authority to examine any of FTX’s other entities and had no access to the activities of other subsidiaries.
During the hearing on Thursday, Behnam reiterated his previous request for lawmakers to grant the agency more authority to regulate digital assets.
The CFTC, which typically oversees derivatives markets dominated by large players like money managers, has the authority to crack down on fraud and misconduct, but does not have the power to regulate spot markets.
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“The CFTC has many tools at its disposal to try to make defrauded customers whole, but the process is long and arduous, and sometimes there is no way to return all of what was lost,” Behnam said.
The primary responsibility for regulating the cryptocurrency industry is another source of dispute among regulators. Several members on the Senate Agriculture Committee previously agreed with Behnam that the CFTC need to play a bigger role.
The U.S. Securities and Exchange Commission, however, has greater experience supervising markets that include individual investors. Gary Gensler, the chair of the SEC, has said he anticipates his organization to be the primary regulator because he views most crypto tokens as securities.
In August, legislation that would create a regulatory framework for digital commodities was introduced by Sens. John Boozman, the committee’s top Republican, and Debbie Stabenow, the chair of the Senate Agriculture Committee.
Behnam suggested that lawmakers “take a pause” and reexamine the bill in light of the FTX bankruptcy, and possibly consider bolstering provisions around disclosures of financial information and conflicts of interest.
The House Financial Services Committee launched a series of hearings on Dec. 13, and many more congressional hearings will be held this month to probe FTX’s bankruptcy.
The committee has said it expects hearing from Binance, FTX, and its affiliated trading company Alameda Research.