Earlier this month, Sen. Debbie Stabenow (D-MI) questioned the CFTC Chairman on federal oversight of digital currencies during a Senate Agriculture Committee hearing.
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NewsTranscript
00:00First, let me talk further, Mr. Chairman. You mentioned in your testimony that the single
00:18most important thing Congress must do amid the increasing popularity of crypto is to
00:24pass legislation that establishes federal oversight of non-security tokens. If Congress
00:32does not act to fill this regulatory gap, does any federal regulator have the authority
00:40to regulate the market for cryptoassets like Bitcoin that are not securities?
00:45Senator, thanks for the question. The short answer to the question is no, and I mean,
00:50this is really the reason we're here, and the problem is, and as you mentioned in your
00:53opening statement, if you measure the Bitcoin economy by market capitalization, upwards
00:59of 70 to 80 percent of the market are non-securities, which means there is no direct federal regulatory
01:06oversight. So despite what I think some may believe, this leaves this giant gap, this
01:11vacuum, and ultimately customers at risk for loss of money, and I think our enforcement
01:16record demonstrates that over the past better part of 10 years.
01:21As you pointed out also in your statement, the problem with our enforcement authority,
01:26although powerful, it's reactive. We're never able to be on our front foot in this situation.
01:31We're always being responsive to tips, complaints from individuals who typically have been defrauded.
01:38Our typical regulatory framework involves registration and compliance with an existing
01:44set of rules, which gives the CFTC or any market authority the ability to look through
01:50a registered entity, whether it's a broker, an exchange, a custodian, or an individual
01:54participant, and those are the types of regulatory tools that enable us to really eliminate,
02:00if not reduce significantly, market fraud and manipulation. Anything else, which is
02:05the current state of play with crypto, again, is only reactive. So we have a very successful
02:11enforcement record, and one that I'm very proud of, and this committee should be too,
02:15but ultimately we're only coming in after the fact, which means money is typically lost,
02:20we're not able to get money back to customers, and we're really not having that same deterrent
02:25effect that we should have if we had a robust, comprehensive regulatory regime.
02:31Thank you. And could you talk a little bit more about the CFTC's experience protecting
02:35retail customers?
02:37Sure. We actually have, despite I think a little bit of a narrative that we don't have
02:41much of a retail-oriented market, certainly a huge part of our market is institutional
02:47and wholesale, as many of you know, significantly on the agriculture side and the energy side
02:52and the large financial institution side for interest rates and credit. But we do have
02:56a growing participant pool of retail investors in both futures. Many on this committee are
03:02familiar with prediction markets, which is a very retail-oriented market as well. So
03:06we do have a pretty robust pool of retail investors, and have so for many years.
03:11And I would also mention from an enforcement standpoint, despite some big-ticket enforcement
03:16cases against large institutions, which typically involve manipulation of markets or noncompliance,
03:23our entire fraud pool of enforcement, or at least a significant portion of it, is very
03:29much focused on retail investors. Unfortunately, retail investors fall prey to fraud around
03:35metals, gold and silver, which I'm sure many on the committee are familiar with, and you
03:40see these in commercials or radio advertisements. And also Forex, which is foreign exchange,
03:47a very typical area where retail fraud occurs. So if you look at the CFTC's record in enforcement,
03:54the fraud is very much focused on retail, and that has enabled us to build a very strong
04:00Office of Customer Education and Outreach, and a very comprehensive program to get information
04:06to retail investors through the Internet, social media, conferences or other events,
04:12to make sure they're aware of the risks associated with retail fraud in commodity markets.
04:18Thank you. And finally, if we give the CFTC new authority to oversee the spot digital
04:25commodity market, we know that we need to ensure you have adequate funding and the resources
04:31to be able to do it, to be able to do what we're asking you to do. And that is what part
04:36of what we are working on, but any fees will not be collected until the agency finalizes
04:42its rules and begins registering these platforms. So during the interim, how much do you anticipate
04:52would be needed in resources to, in terms of annual appropriations, for you to set up
04:59the regulatory regime?
05:00Thanks, Senator. We actually, and you alluded to this, there have been a number of efforts
05:04in Congress, both here in the Senate, including this committee, and in the House more recently,
05:10to produce bills around legislating authority for the CFTC. And in light of those efforts,
05:17over the course of two or three years, we've actually done a bit of analysis at the agency
05:23regarding what we would need. So essentially, responding to your question, with some assumptions,
05:28of course, assumptions based on how many registrants we would have in the broker-dealer space,
05:33in the exchange space, in the custodian space. But with those assumptions, which I think
05:37is fair and informed based on what we see in the unregulated market, we've largely estimated
05:44that we would need somewhere between $50 million to $60 million in a first year, and then $30
05:49million to $35 million in a second year, with a correlated number of full-time equivalent
05:54employees ranging from 100 to 50 to 75 in the first and the second year.
06:00We also have estimates for the third year, but we do have a fairly thorough analysis
06:05of what we would need in an interim, whether it's one, two, or three years, and we're happy
06:10to share that with the committee as it considers legislation.
06:13Thank you so much. Senator Bozeman.