On September 14, US President Joe Biden announced his election to fill two vacant seats on the US Commodity Futures Trading Commission (CFTC). In addition, the President nominated Rostin Behnam, who has been Deputy Chairman of the Supervisory Authority for Derivatives since January, for the permanent office.
Appointments are unlikely to face any serious obstacles en route to confirmation, as nominees must obtain a simple majority in the now Democratic-controlled Senate. What can the crypto industry expect from the CFTC when Behnam takes over the permanent chairmanship and Kristin Johnson and Christy Goldsmith Romero join the panel as commissioners?
Increase the power of roses
In 2015, the CFTC introduced and defined Bitcoin (BTC) and other digital currencies as commodities under the US Commodity Exchange Act, thus joining the ranks of the participating US government agencies in the regulation of the crypto space. The Authority also asserts jurisdiction over cases where “virtual currencies are used in derivative contracts or where there is fraud or manipulation of virtual currencies traded in international trade”.
The CFTC, which is said to have five strong men when fully occupied, was reduced to the incumbent chairman and two commissioners this year. Heath Tarbert, the previous chairman, resigned in March, Brian Quintenz resigned in late August and Dan Berkovitz, one of the remaining commissioners, announced his intention to resign on October 15.
The nominations come amid criticism that the Biden government has taken the time to fill vacancies in several key regulatory agencies, including the CFTC. If this is confirmed, the new additions to the agency would give the Democrats a 3-1 majority on the panel.
From the incumbent permanent chairman
Acting Chairman Behnam has been with the CFTC since July 2017 when he was sworn in as Commissioner. Under crypto-friendly President Giancarlo, Behnam has spoken extensively on several occasions about digital currencies and their transformative potential.
At a regulatory summit in 2018, Behnam first emphasized that cryptocurrencies – or virtual currencies in CFTC parlance – will “become part of the country’s economic practice”, small economies can become dependent on virtual assets for survival “. Finally, Behnam admits that the limits are within reach for regulators as digital currencies evolve:
“These currencies will be outside of traditional money brokers such as governments, banks, investors, ministries or international organizations.”
Recently, the rightful CFTC chief spoke about the need to have constructive conversation between policymakers and innovators in the financial technology sector while keeping the urgency of American innovation at home. In his March 2020 comments on the Commission’s approach to cryptocurrencies, Behnam said:
“I have long advocated a more inclusive conversation about the birth of financial technology, and I believe that a thorough study and discussion of the technology within its current regulatory and regulatory framework will best serve technologists, market participants and customers.”
Sounds like what the industry is craving, doesn’t it? However, it would be premature to rely solely on expectations of the future guidance of the derivatives regulator in making these statements. After all, like any US financial regulator whose legal goal is to protect market participants from the start, the CFTC can always be on the safe side when innovations are introduced that run counter to consumer safety.
Commenting on BitMEX’s recent agreement with both the CFTC and FinCEN, Behnam said, “The CFTC will take immediate action as the CFTC’s regulatory market activities raise concerns about customer protection and consumers.”
Biden’s two picks for the vacant CFTC commissioners are Emory University law professor Kristin Johnson and Christy Goldsmith Romero, the current inspector general of the Troubled Asset Relief Program, an enforcement agency.
Recent work by Professor Kristin Johnson focuses on the impact of emerging financial technologies, including distributed digital ledger technology (DLT) and artificial intelligence (AI), on financial regulation. Before her academic employment at Emory and before that at Tulane, she worked in corporate finance, in particular as Assistant General Counsel and Vice President at JP Morgan.
As the General Inspector of TARP, Christy Goldsmith Romero investigates the criminality of financial institutions in connection with the bailouts carried out under the program. In this role, she works closely with the SEC, an agency where she previously served as a senior advisor in the enforcement department.
On the surface, the trio appears to be a winning combination of an innovation-friendly president, a legal scholar with a deep understanding of cutting-edge financial technology, and an expert on financial crime.
Daniel Davis, partner at law firm Katten Muchin Rosenman LLP and former General Counsel of the CFTC, believes that any of Biden’s recommendations have the potential to make positive changes in crypto regulation. The incumbent chairman, Behnam, would be in an excellent position if he were to take over the office on a permanent basis to drive the regulatory talks forward.
Related: Slow Start: Crypto regulators are lagging behind the blockchain industry
Additionally, Ms. Johnson and Ms. Goldsmith Romero bring excellent crypto-related credentials to their potential commissioners. Davis further noted the two nominees:
“Both taught crypto-related law courses. Ms. Johnson has also written extensively on topics such as financial services regulation and how decentralized finance (DeFi) can fit into the current regulatory structure with some innovative ideas. One would expect that if confirmed, crypto-related issues would form an important part of their respective agendas. “
In this context, it is indeed tempting to be optimistic about future reinforcements of the CFTC, albeit with some reservations. First, as the example of current SEC chief Gary Gensler shows, understanding digital finance and teaching blockchain courses at a top university need not be allies of the cryptocurrency industry if the person holds a high position with the regulator.