CFTC Commissioner Stump Explains CFTC’s Authority Over Digital Assets – Finance and Banking

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 Steven Lofchie

Commissioner Stump’s outline is right on point.

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