CFTC Issues Warning About Risks of Digital Asset Clearing

The US Commodities and Futures Trading Commission (CFTC) has released a warning related to the clearing of digital assets. The CFTC’s Division of Clearing and Risk (DCR) has seen derivatives clearing organizations (DCOs) and applicants expand their offerings, with some related to digital assets. The DCR has expressed concern about “potentially heightened risks” associated with clearing activities related to digital assets, including cybersecurity requirements, conflict of interest, and the physical delivery of digital assets. The CFTC has instructed DCOs to identify and manage these risks.

CFTC Commissioner Warns of Crypto Clearing Risks

CFTC Commissioner Kristin Johnson has said that the warning demonstrates an “increasingly urgent need” for the CFTC to begin a rulemaking process around the risks connected to “crypto clearing activities.” Johnson has warned that crypto-commodity derivatives clearing models could escape regulation unless the CFTC introduces parallel regulation similar to that in other markets. If such regulations are not applied, regular investors could be exposed to high-risk platforms with few customer protections, Johnson warned.

CFTC Intends to Regulate Cryptocurrency Commodities

While the CFTC could expand its authority over cryptocurrency, the agency has made it clear that it does not intend to regulate all crypto markets. CFTC chairman Rostin Benham recently indicated that the CFTC plans to regulate cryptocurrency commodities as opposed to cash markets.

Final Thoughts

The warning from the CFTC should be taken seriously as it highlights the potential risks associated with digital asset clearing activities. It is important that DCOs identify and manage these risks to protect their customers. Additionally, the warning from Commissioner Johnson serves as a reminder that regulation is necessary to ensure that regular investors are not exposed to high-risk platforms with few customer protections. The CFTC’s intention to regulate cryptocurrency commodities is a step in the right direction towards providing oversight for the industry.