On September 14th, the President of the United States, Joe Biden announced his election to fill two vacant positions on the United States Commodities Futures Trading Commission (CFTC). In addition, the President appointed Rostin Behnam, who has headed the supervisory authority for derivatives as interim president since January, as his permanent successor.
The nominations are unlikely to face serious obstacles on their way to confirmation, as the nominees must obtain a simple majority of votes in a currently Democratic-controlled Senate. What can the crypto industry expect from the CFTC when Behnam takes over the permanent chairmanship and Kristin Johnson and Christy Goldsmith Romero join the agency as commissioners?
Strengthening the Commission
In 2015, the CFTC defined Bitcoin (BTC) and other digital currencies as commodities under the US Commodities Exchange Act, joining the ranks of US government agencies involved in regulating the cryptocurrency space. The Agency also asserted its competence in cases where “a virtual currency is used in a derivative contract or where there is fraud or manipulation with a virtual currency in international trade”.
The CFTC, which is designed to have five members when fully occupied, has reported to an incumbent president and two commissioners this year. Heath Tarbert, the former president, left in March and Brian Quintenz resigned in late August. Additionally, Dan Berkovitz, one of the remaining commissioners, has announced his intention to leave on October 15.
The nominations come amid criticism of the Biden government for taking the time to fill vacancies with several key regulators, including the CFTC. If this is confirmed, the agency’s new additions will give the Democrats a 3-1 majority on the panel.
From incumbent president to permanent president
Acting Chairman Behnam has been with the CFTC since July 2017 when he was sworn in as Commissioner. Under crypto-friendly President Giancarlo, Behnam has spoken positively about digital currencies and their transformative potential on several occasions.
On the one hand at a regulatory summit in 2018, Behnam said that cryptocurrencies, or virtual currencies in CFTC parlance, are designed to become “part of the economic practices of every country, everywhere” and rightly stated that “some places, small economies, can become dependent on virtual assets for to survive”.. Eventually, Behnam recognized the limits open to regulators as digital currencies continue to proliferate:
â ???? These currencies will be outside of traditional monetary intermediaries such as the government, banks, investors, ministries or international organizations.
Recently, the CFTC Acting Chair spoke on the need for constructive conversation between policymakers and innovators in financial technology and the urgency of keeping American innovation at home. In a March 2020 commentary on a Commission action related to cryptocurrencies, Behnam said:
“I have long advocated a more inclusive conversation about the advent of financial technology, and I believe that a thorough study and discussion of the technology within our current legal and regulatory framework will best serve technologists, market participants and customers.”
Sounds like what the industry is craving, doesn’t it? However, it would be premature to base any expectations of future derivatives regulation policy on these statements alone. As with any US financial regulator, whose legal goal is primarily to protect market participants, it can always be assumed that the CFTC will play it safe when innovation is perceived as being in the pipeline.
Commenting on BitMEX’s recent agreement with the CFTC and FinCEN, Behnam said, “The CFTC will take immediate action if activities affecting the CFTC’s jurisdiction markets raise concerns about the protection of customers and consumers.”
Biden’s two picks for the vacant CFTC commissioner positions are Emory University law professor Kristin Johnson and Christy Goldsmith Romero, the current inspector general of the Troubled Asset Relief Program, a federal agency dealing with financial crime related to the U.S. government bailout Program.
Recent work by Professor Kristin Johnson focuses on the impact of emerging financial technologies, including distributed ledger technology (DLT) and artificial intelligence (AI) for financial regulation. Prior to her academic position at Emory and before that at Tulane, she worked in corporate finance, primarily as Deputy General Counsel and Vice President of JP Morgan.
As TARP Inspector General, Christy Goldsmith Romero investigates crimes committed by financial institutions in connection with bailouts carried out under the program. In this role, he works closely with the SEC, an agency where he previously worked as a senior advisor in the compliance area.
Apparently, The trio appears to be a winning combination of an innovation-friendly president, a legal scholar with a deep understanding of the latest financial technology, and a seasoned financial crime investigator.
Daniel Davis, a partner at law firm Katten Muchin Rosenman LLP and former General Counsel of the CFTC, believes that any choice of Biden has the potential to make positive changes to cryptocurrency regulation. The incumbent Chairman, Behnam, will be in an excellent position if he takes office on a permanent basis to drive the regulatory discussion forward.
Additionally, Ms. Johnson and Ms. Goldsmith Romero bring excellent cryptocurrency-related credentials to their potential roles as commissioners. Davis further commented on the two nominees:
â ???? Both have taught courses in law related to cryptocurrencies. Ms. Johnson has also written extensively on topics such as financial services regulation and how decentralized finance (DeFi) could fit into the current regulatory structure with some innovative ideas. One would expect that when confirmed, crypto-related issues will be a huge part of their respective agendas.
From that point of view, it is really tempting to be optimistic about the possible reinforcements of the CFTC, but with some reservations. On the one hand, as the example of current SEC chief Gary Gensler shows, Having knowledge of digital finance and teaching blockchain courses at a top university doesn’t necessarily mean becoming an ally of the cryptocurrency industry if the person holds a senior position in a regulator.