Digital Assets Regulations: Does the CFTC Have Broad Enforcement Authority over Crypto Derivatives?

As it relates to regulating the digital currency ecosystem, the conflicting position of the Securities and Exchange Commission (SEC), the Financial Crimes Enforcement Network (FINCEN), and the Commodity Futures Trading Commission (CFTC) have often confused crypto stakeholders. Drawing on its core roles, CFTC Commissioner Dawn D. Stump has issued a set of guidelines targeted at making the public understand the aspects of crypto that the commission regulates.

According to her, the CFTC does not regulate commodities irrespective of the forms in which they take such as cash, cattle, gas or digital currencies. However, the agency has a sweeping authority to regulate futures contracts and all forms of derivatives products on each of these commodities. 

“The CFTC does regulate derivatives on digital assets, just like it regulates other derivatives. That includes the regulation of trading, clearing, etc., of futures contracts and swaps on digital assets (such as the futures contracts on Bitcoin and Ether listed for trading on various CFTC-regulated exchanges),” the commissioner said.

Regulations on Securities and Enforcement Actions

According to Stump, the agency does not also interfere with assets that have been classified as securities – these she said fall under the jurisdiction of the SEC. Just like commodities, derivatives or futures trading on securities are also under the regulatory powers of the CFTC. However, Commissioner Stump noted that due to the allowance provided in the Commodity Exchange Act (CEA), and the Federal securities statutes, “Congress determined that futures contracts and other derivatives on securities may be regulated by the CFTC or the SEC, or jointly by both.”

This may bring confusion as the commissioner highlighted, and entities must seek further clarity on the products that seem unclear. Per enforcement action, Stump noted that the CFTC can exercise enforcement actions on the firms offering products or services on the items it regulates.

“A trading platform that offers derivatives on digital assets to U.S. persons without registering, or in violation of CFTC trading rules, is subject to the CFTC’s enforcement authority,” the commissioner said, adding “That was the case in the recent CFTC enforcement action against BitMEX, and the CFTC has brought similar such actions dating back to 2015.”

BitMEX has reached a settlement deal with the CFTC and other regulators per the enforcement actions cited by the commissioner Stump.

Many industry veterans, including former CFTC Chairman, Chris Giancarlo has spoken in favor of the commission as more tilted to regulating the crypto markets than the SEC. The clarity on the regulations in the crypto ecosystem is notably unclear, and more clarifications beyond those of Commissioner Stump will have to be made up to congress level in the coming years.