CFTC commissioner says agency has broad enforcement authority on crypto derivatives

Published at: Aug. 23, 2021

Dawn Stump, one of four commissioners currently serving at the Commodity Futures Trading Commission, or CFTC, has released a statement clarifying the agency's authority with respect to digital assets.

In a Monday statement, Stump said the CFTC is empowered with both regulatory and enforcement authority for commodities. She did not specifically say that digital assets were cash-like commodities in the eyes of the regulatory body, but “even if a digital asset is a commodity, it is not regulated by the CFTC.” According to the commissioner, however, the agency is within its power to regulate derivatives on digital assets, “such as the futures contracts on Bitcoin and Ether listed for trading on various CFTC-regulated exchanges.”

U.S. government agencies including the CFTC, Securities and Exchange Commission (SEC) and the Financial Crimes Enforcement Network (FinCEN) are largely responsible for handling digital asset regulation and enforcement in the country. However, each has different jurisdictional claims regarding crypto, often leading to confusion for companies trying to operate within the law.

According to the commissioner, the CFTC should analyze a digital asset that is already considered to be a security — and would thus fall under the SEC’s regulatory umbrella — to determine where the agency’s regulatory authority would lie for a derivatives product for that same project. However, she clarified that the CFTC had enforcement authority over financial products that it currently 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,” said Stump. “That was the case in the recent CFTC enforcement action against BitMEX, and the CFTC has brought similar such actions dating back to 2015.”

She added:

"To determine the CFTC’s regulatory authority with respect to a digital asset, ask not whether the digital asset is a commodity or a security — ask whether a futures contract or other derivatives product is involved."

In the case of BitMEX, the crypto derivatives exchange agreed to pay $100 million as part of a settlement with both the CFTC and the FinCEN. However, the regulatory agency is also reportedly looking into Binance Holdings Limited for possible derivatives trades made by United States-based customers, and previously filed charges against the Laino Group for soliciting investors on Bitcoin (BTC), Ether (ETH), and Litecoin (LTC) futures trading without proper registration.

While Stump has taken a position that seems to relegate many cryptocurrencies to the SEC’s regulation and enforcement, she is only one of four voices — usually six — on the panel regulating commodities. Commissioner Brian Quintenz, a seemingly pro-crypto advocate in the CFTC, reportedly plans to step down at the end of August.