InfoBytes Blog
Commissioner says CFTC should take a “same risk, same regulatory outcome” approach for addressing crypto risks
On October 26, CFTC Commissioner Christy Goldsmith Romero spoke before the International Swaps and Derivatives Association’s Crypto Forum 2022, where she presented thoughts on the financial stability risks of cryptocurrency assets. Romero cautioned that the “rapidly developing crypto market” is facing similar financial stability risks as the traditional financial system, including parallel themes from the 2008 financial crisis. She highlighted events such as those that happened earlier in the year where an algorithmic stablecoin and related crypto-asset collapsed and triggered a broad sell off of cryptocurrency that spread losses to several institutions who abruptly cut off lending. These vulnerabilities serve as a warning for growing intra-market risks, Romero said, explaining that “[j]ust as regulators could not see the true exposures or risk in 2008 due to unregulated companies and products, [regulators] cannot see that today with unregulated crypto markets.” Moreover, without additional regulatory authority, the CFTC’s ability to monitor these risks is hampered, she said, adding that “[f]inancial stability risk will increase, and could rise to the level of systemic risk if in the future there are greater interconnections between the crypto industry and traditional finance players performing critical market functions.”
Romero recognized that novel technologies bring novel risks, and said that the CFTC should address these risks by using its existing authority to follow a “same risk, same regulatory outcome” approach and establish customer protections and guardrails that investors and customers are familiar with and have come to expect from other regulated financial products and markets. She emphasized that financial institutions interested in entering the digital asset space “should undertake substantial due diligence to determine vulnerabilities” in areas such as cyber theft, money laundering, and sanctions evasion; fraud, scams, and market manipulation; customer asset segregation; and conflicts of interest.