U.S. CFTC Commissioner warns about the risks if crypto companies self-certify
By Chris Prentice, Hannah Lang
NEW YORK/WASHINGTON – A top U.S. Commodity Futures Trading Commission official (CFTC) plans to warn lawmakers Wednesday against allowing cryptocurrency exchanges self-certify with the agency in order for them to list their products for trading.
The CFTC already permits self-certification by exchanges for the listing of contracts for other products. A similar process was being considered by lawmakers as part of the crypto legislation that was drafted last year.
Christy Goldsmith Romero, CFTC Commissioner, said that the process could open the door for “regulatory arbitrage”, as certain crypto assets are securities that should be monitored by a different agency like the Securities and Exchange Commission (SEC).
According to remarks she made at an event at Penn, “Oversight is required to prevent abuse” of this process, she stated.
As lawmakers gather to create legislation to better supervise the troubled crypto sector, which suffered a wave bankruptcies last yet and continues to reel from FTX’s sudden collapse and alleged fraud, her warnings are timely.
Romero also raised doubts about the quality of due diligence firms performed before investing in FTX. This suggested that there might be incentives for “to blindly” red flags in a highly competitive market.
Federal prosecutors brought charges against three former top executives at FTX, accusing them of defrauding customers and misappropriating funds.
According to two sources, the SEC is also looking into FTX investors’ due diligence.
In order to regain the public’s trust following the FTX meltdown, the crypto industry should enshrine strong corporate governance and increase the roles that gatekeepers like lawyers and compliance professionals play at companies, Goldsmith Romero said.
“Gatekeepers should have seriously questioned the operational environment at FTX in the lead-up to its meltdown,” she said.
(Reporting by Chris Prentice, Editing by Josie Kao