Crypto’s favourite regulator doesn’t have enough teeth, US senator says

Crypto’s favourite regulator doesn’t have enough teeth, US senator says
Regulation
Senator Dick Durbin, a Democrat from Illinois, says that CFTC isn't strong enough to regulate crypto. Credit: Philip Yabut/Shutterstock
  • The crypto industry would prefer the CFTC to be its watchdog.
  • But lawmakers fear the agency would be biting off “a hell of a lot more than it could chew.”

A Senate Appropriations Committee hearing on Thursday highlighted a question at the heart of US crypto regulation: Does the US derivatives watchdog have enough resources to police cryptocurrencies?

Lawmakers worry that the Commodity Futures Trading Commission “is biting off a hell of a lot more than it can chew” in wanting to regulate crypto markets, Democratic Senator Dick Durbin of Illinois said.

Durbin was speaking during the hearing held to consider funding for the CFTC and its sister agency, the Securities and Exchange Commission.

The SEC has by far more resources than the CFTC. It’s a disparity that has rankled past CFTC chairs and that has attained new urgency now that Congress is seriously considering tailored regulations for crypto.

CFTC Chair Rostin Behnam responded to Durbin by saying that his agency was “adequately equipped” to oversee the markets it is mandated to oversee.

“But if we were given authority over crypto markets, I would certainly expect there to be an increase in the budget,” he added.

FIT21 Act

A bill that passed the House of Representatives in May would give the CFTC exactly that authority — though not a bigger budget — if it became law.

The crypto industry has hailed the FIT21 Act as a pathway toward a market structure tailored to cryptocurrency trading.

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Per the wishes of many crypto industry players, the bill contemplates anointing the CFTC, rather than the SEC, as the industry’s primary regulator.

That has stoked worries that the CFTC is underfunded.

Different funding models

On Thursday, SEC Chair Gary Gensler asked the Appropriations Committee for $2.6 billion to fund the SEC for the 2025 fiscal year, which begins on Oct. 1.

Behnam askedthe committee for $399 million for fiscal 2025.

The difference in their budgets is partly because the SEC is a larger agency that oversees the public securities markets, which historically dwarfed the futures markets that the CFTC regulates.

However, when the Congress passed post-financial crisis legislation during the Obama years, the CFTC was given a big chunk of the swaps markets to oversee, without increasing its budget accordingly.

Also, the SEC is partly self-funded, as it collects fees from market participants that offset its cost to taxpayers.

CFTC the preferred regulator

Yet, the crypto industry has lobbied for the CFTC to be its primary regulator, believing it to be more lenient.

Behnam, however, rejects the characterisation of his agency as relatively toothless.

He told the committee on Thursday that his agency’s enforcement record demonstrates that it can handle the crypto industry.

“Over the past 10 years, we brought 135 crypto cases, we’ve brought in billions of dollars [in penalties], and we’ve successfully policed a market where we don’t have direct authority and jurisdiction,” Behnam said.

He added that the failure to grant that to the CFTC has resulted in “fraud and rampant abuse in markets, and ultimately public mistrust, lack of confidence and loss of funds.”

Joanna Wright writes about crypto regulation for DL News. Reach out to her at joanna@dlnews.com.