US Commodity Futures Trading Commission Chairman Rostin Behnam told a meeting of the Senate Committee on Agriculture, Nutrition and Forestry on Dec. 1 that his agency's regulations contain "core elements that have served to markets for decades. But as the fallout from the FTX collapse has been worked out, notable loopholes in current legislation have come to light, Behnam and the senators agreed.
Senator Tina Smith called FTX's collapse "shocking, not surprising" and said future crises will continue to occur as long as regulatory loopholes remain. Behnam noted that the Securities and Exchange Commission has the authority to require that basic safeguards be put in place, such as the separation of house and client money and the best execution of investment trades.
โWe know how to do this,โ Behnam said. Nonetheless, he had stated in his opening remarks:
โInvariably, the questions that we are all forced to answer as regulators are: 'How did you allow this to happen?' and 'How will you prevent this from happening again?' [โฆ] Without new authority for the CFTC, loopholes will remain in a federal regulatory framework, even if other regulators act within their existing authority."
Behnam has lobbied for greater authority for his agency for months. He alluded to alleged conflicts between the CFTC and the SEC when he dismissed talk of a "seizure of power." Interagency cooperation is not new and will continue, Behnam said. Extending the authority of the CFTC is about โfilling a gap.โ
โI think the responsibilities would be the same,โ between the SEC and CFTC with comprehensive regulation, and CFTC regulation works well where applicable.
Behnam pointed to crypto derivatives and clearing platform and FTX subsidiary LedgerX as an example of successful CFTC regulation. But, "We at the CFTC do not have the legal authority to ask about an unregulated entity" without a whistleblower, Behnam told Sen. Tommy Tuberville. Furthermore, Behnam told him:
โWe simply don't have the authority to register trades in the cash market [โฆ] This is the gap."
Tuberville also noted that FTX had high governance ratings from rating agencies. Can they be sued? Tuberville asked. Oversight of rating agencies is another "potential gap," Behnam responded.
CFTC Chairman Behnam says DCCPA would have prevented FTX's collapse.
Would DCCPA apply to an exchange from the Bahamas? https://t.co/5RTpBZravM
โ Miller (@millercwl) December 1, 2022
Senator Kristen Gillibrand, co-author of the Responsible Financial Innovation Act with Senator Cynthia Lummis, told Behnam there were "a couple of areas where I still see risk." Mergers and acquisitions was one such area. The CFTC Paperwork to initiate FTX's acquisition of LedgerX it amounted to "a filing of notice" at best, Behnam conceded.
There is also the question of the impact of foreign companies on the United States and US entities doing business abroad, Gillibrand added.
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