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Financial Services Law Insights and Observations

CFTC commissioner seeks increased digital assets oversight

Federal Issues Digital Assets CFTC Cryptocurrency Fintech

Federal Issues

On August 19, CFTC Commissioner Kristin N. Johnson delivered remarks discussing digital asset policy, innovation, legislation, and regulation before a roundtable at the CFTC. In her prepared remarks, Johnson highlighted the “increasingly diverse crypto-investing community,” including historically underserved groups who are drawn to digital asset markets by “promises of financial inclusion” and opportunities to “increase income, wealth, and resources – a promise that, if realized, may enable them to transition from fragile financial circumstances to achieving the American dream.” Johnson noted, however, that instability in these markets have led the CFTC to examine closely “the specific implications of crypto-investing for diverse communities and the potential benefits of well-tailored, carefully crafted regulation.” Johnson referenced Treasury Secretary Janet Yellen’s April 7, 2022 remarks at American University’s Kogod School of Business Center for Innovation, which said that while regulations should be “tech-neutral,” they should also ensure that innovation does not cause disparate harm or exacerbate inequities.

Johnson also discussed President Biden’s March 9 Executive Order (covered by InfoBytes here), Ensuring Responsible Development of Digital Assets, which stressed the need for “steps to reduce the risks that digital assets could pose to consumers, investors, and business protections” and mitigate “illicit finance and national security risks posed by misuse of digital assets,” including money laundering, cybercrime and ransomware, terrorism and proliferation financing, and sanctions evasion. While the E.O. “marked an important step towards greater cooperation and coordination among cabinet-level agencies, market regulators and prudential regulators,” Johnson called for an “increase [in] investor education and outreach to empower consumers and contemporaneously combat illicit activity and safeguard the integrity and stability of our financial markets.”

Johnson also discussed pending legislation intended “to better protect consumers and enhance market structure and market integrity in digital assets and cryptocurrency markets,” such as the Digital Commodities Consumer Protection Act of 2022 (DCCPA), which “seeks to give the CFTC jurisdiction over digital asset spot market transactions by expanding the definition of ‘commodity’ in the CEA to include ‘digital commodities.’” She further explained that the DCCPA, among other things, “would require the CFTC to conduct a study on the impact of digital assets on diverse communities.” Johnson also mentioned the Responsible Financial Innovation Act, calling it “a comprehensive reform measure that introduces the concept of ‘ancillary assets’ as a pathway for clearly defining oversight of digital assets and cryptocurrencies as securities or commodities.” Johnson emphasized that market participants have expressed heightened cybersecurity concerns regarding attacks on cryptocurrency exchanges or trading platforms, and stressed that “[i]t is vital for the U.S. to bolster its role as a leader in the global financial system by developing a strong regulatory framework for digital assets[.]”