Better Markets said the US Commodity Futures Trading Commission’s proposed framework for certain cryptocurrency transactions and exchanges would leave investors with less protection than they would receive under the Securities and Exchange Commission.
The nonprofit financial reform advocacy group said the derivatives regulator’s effort to write rules for some retail crypto transactions could weaken safeguards for investors because the CFTC is not well suited to oversee that part of the market.
CFTC opens comment process on retail crypto framework
On Monday, the CFTC asked for public comment on a possible framework covering margined, leveraged or financed retail crypto transactions under its existing authority.
Benjamin Schiffrin, director of securities policy at Better Markets, said CFTC oversight is less appropriate than SEC oversight when the issue is protecting retail investors.
“Unlike the SEC, the CFTC lacks an investor protection mandate. Its mission is to regulate the commodity and derivatives markets, which historically have been dominated by large institutions with very little retail investor participation,” Schiffrin said.
He added: “Because the CFTC’s rules lack the protections that apply when investors trade securities regulated by the SEC, the CFTC is the wrong agency to regulate transactions involving crypto assets by retail customers.”
Better Markets disputes the legal basis and the “crypto capital” push
The criticism comes as the CFTC and SEC continue moving on crypto policy under existing law after the CLARITY Act stalled in Congress. Both agencies had previously indicated they were prepared to act without new legislation.
Better Markets also challenged the CFTC’s claim that Congress intended the agency to oversee these kinds of retail crypto transactions.
Schiffrin said the statutory authority cited by the CFTC was originally enacted to address fraud in leveraged precious-metals trading, and argued that this does not show an intent for the agency to become the primary regulator for retail crypto.
He also criticized the framework under consideration for potentially allowing affiliations between market participants, which Better Markets said contributed to the collapse of FTX.
Schiffrin also criticized CFTC Chair Mike Selig’s remarks about making the United States “the crypto capital of the world.”
“Yet he does not explain why that is a good thing. For example, the US is not the cocaine production capital of the world, and no one is complaining—for good reason,” he said.
He also said: “Crypto—after 18 years of effort and innumerable disproved and baseless claims—still lacks any real-world use case. It is used either purely for speculation or for criminal purposes.”
Nate Geraci, president of NovaDius Wealth Management, pushed back on that characterization. He said the crypto industry is simply seeking clear rules of the road, and argued that if Congress cannot provide them, the CFTC and SEC may have to do so.
CFTC and SEC continue after CLARITY Act setback
The CFTC’s newly proposed crypto framework also considers creating a new federal category for crypto trading platforms, which would place qualifying exchanges directly under CFTC oversight.
The SEC is also moving ahead with several crypto-related measures. On Thursday, it proposed easing some custody rules for investment advisers, while separately allowing limited tokenized US stock trading and issuing new guidance on how securities laws apply to crypto.