The US Commodity Futures Trading Commission’s proposed rules would effectively allow US crypto exchanges to opt into a federal regulatory framework instead of relying primarily on a patchwork of state money-transmitter licenses, the agency said.
The proposed rules make use of a specific authority the CFTC has to oversee margined or leveraged spot assets. The CFTC has long sought authority to regulate spot cryptocurrency markets — which currently operate in a regulatory grey area — but only Congress has the ability to provide the regulator with that purview.
“For years, entrepreneurs building on the new frontier of finance faced uncertainty about whether there was a place for them in our markets. We are giving them an answer,” said CFTC Chairman Michael Selig in a speech on Monday at an event in New York held by Fordham University’s law school.
RULES WOULD ESTABLISH NEW TRADING VENUE CATEGORY
Under the proposed rules, the CFTC would establish a new category of CFTC-regulated trading venues called a “crypto asset market” for exchanges that offer leveraged or margined trading to retail customers. Those platforms would be subject to specific requirements including anti-market-manipulation controls and a “proof of reserves” obligation.
The CFTC is also proposing that registered futures commission merchants intermediate customer trades on the new category of exchanges.
The agency is not stipulating specific leverage limits, but any exchange offering a leveraged transaction would have to clear that product with CFTC staff, the agency said.
The proposed rules come after Congress failed to advance a major crypto bill, called the Clarity Act, which would have created new rules for the $2 trillion cryptocurrency market, putting the industry on a firmer legal footing. One of the key components of the bill was the explicit authority for the CFTC to police the spot crypto market.
The impasse in Congress has put the onus on US President Donald Trump’s crypto-friendly regulators, particularly the Securities and Exchange Commission and the CFTC, to give the industry the regulatory clarity it has long argued it lacks.
Still, analysts have said that without legislation, regulations could be vulnerable to the shifting political climate and court challenges, creating lingering hazards for the crypto industry.