CFTC Commissioner Stump explains CFTC's authority over digital assets

CFTC Commissioner Dawn D. Stump outlined the CFTC's regulatory and enforcement authority with respect to digital assets. Ms. Stump explained that the proliferation of digital assets has (i) raised questions as to how such assets are regulated in the United States and (ii) resulted in the "grossly inaccurate oversimplification" that such assets are either SEC-regulated securities or CFTC-regulated commodities.

Ms. Stump expressed the need for a broader understanding of the scope of the CFTC's authority over digital assets prior to determining the need to redesign cryptocurrencies' regulatory oversight, and provided an infographic highlighting the following key points.

  • The CEA's definition of "commodity" is very extensive, and categorizing a digital asset as a commodity is "unremarkable."

  • The CFTC's (i) regulatory authority under the CEA consists of "registration requirements, day-to-day oversight, and principles-based regulation," and (ii) enforcement authority consists of the CFTC's power to bring civil enforcement action against entities that violate the CEA and the CFTC's regulations.

  • The CFTC's regulatory authority is inclusive of commodity futures contracts and derivatives products, not cash commodities. Therefore, while the CFTC regulates digital assets derivatives (such as Bitcoin futures contracts) it does not regulate digital assets.

  • The CFTC does not regulate securities. Accordingly, even if a digital asset is a security, the CFTC would not regulate it.

  • Although the CFTC does not regulate securities, it may regulate derivatives on securities, thus requiring further analysis as to whether the CFTC has regulatory authority over a derivatives product on a digital asset that is a security, as it would over a futures contract on a security.

  • Because the CFTC's enforcement authority undoubtedly covers the products it regulates, an unregistered trading platform offering digital asset derivatives to U.S. persons or violating other CFTC trading regulations is subject to CFTC enforcement action.

  • Because a "well-functioning" futures contract is based on a stable underlying cash market and might refer to cash market indexes in its pricing, part of the CFTC's enforcement authority is its responsibility to prevent manipulation and fraud with respect to cash commodities.

  • Although the CFTC does not regulate cash market digital assets, it has asserted its enforcement authority "for a number of years" in order to prevent fraud and manipulation associated with cash digital assets.

  • To assess whether the CFTC has regulatory authority as it pertains to a digital asset, consider whether the matter concerns a futures contract or another type of derivatives product.

Commentary

Commissioner Stump's outline is right on point.

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