Speaking at Harvard Kennedy School at a lecture series covering financial regulations, Heath Tarbert, Chairman of the U.S. Commodity Futures Trading Commission, addressed the agency’s current position on cryptocurrencies.
In short, he says he and his colleagues are still trying to understand the space, while also identifying two of the industries major issues.
“By and large, the two major problems, thus far, with the vast majority of crypto – or I should say ‘issues’ – are, number one, anti-money laundering and counter terrorist financing. So these are things that could, if done wrongly, subvert our AML/CTF.
So we recently issued a statement that was joint FinCEN, the SEC and the CFTC two Fridays ago essentially saying, ‘If you are one of our regulated entities, and even if you’re not dealing with products that we regulate, but you’re dealing with digital assets, cryptocurrencies, etc., you’ve got to apply the anti-money laundering laws, the Patriot Act, etc., to those. So we were very clear on that point.
The second issue has been investor protection. These ICOs [initial coin offerings] – people are issuing these so-called ‘cryptocurrencies, assets’ and they may be nothing more than fraudulent schemes. So those are the issues thus far.”
While there are no specific principles in place to guide the industry, Tarbert says they’re also thinking through issues related to margin trading, the custody of digital assets and Mark Zuckerberg’s crypto project Libra.
“First, I think there’s the issue of a stable value coin. Right now, if an asset is backed by a commodity and it likely would be under our jurisdiction – but there’s a whole host of questions, not only because you’ve got the backing issue and the potential run risk and other things that we’re starting to talk about…the G7 report – but the interesting thing about that particular digital asset is the potential scope for it.
I think for the first time, there’s the possibility of a global stablecoin, and that raises a whole host of additional issues: monetary policy, systemic risk, etc. So that one we’re very much still working through and we’re still trying to figure out exactly what it is and what it does.”
Harbert also explains how the agency can target an organization outside of its jurisdiction in order to protect markets.
“Jurisdiction. Here’s how it works. If it’s a commodity, it falls within the CFTC’s jurisdiction. If it is a derivative of a commodity, then we regulate it and also have enforcement authority. If it’s just a commodity, we don’t have, necessarily, regulatory authority but we do have enforcement authority for fraud and manipulation.
Because if you had fraud in a commodities market that was not on a futures exchange, it could nonetheless affect the stability of the futures markets…So we theoretically can go after cryptocurrency exchanges that are selling into the United States that are not registered CFTC exchanges, and would not necessarily be required to register with the CFTC. But if there’s fraud and manipulation occurring because it affects our markets, we theoretically have enforcement jurisdiction.”
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