Klobuchar Presses CFTC Chairman On Crypto Oversight: ‘You Need More Statutory Authority, Correct?’

3 months ago

Earlier this month, Sen. Amy Klobuchar (D-MN) questioned the CFTC Chairman Rostin Behnam on digital currencies during a Senate Agriculture Committee hearing.

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Transcript

00:00Thank you very much. Senator Klobuchar and then our cleanup hitter, Senator Bozeman.

00:06Always patient, always patient. Thank you, Chairwoman. Thank you, Senator Bozeman. And

00:11thank you very much for your work, Director.

00:15So, Chairman, the CFTC, we know, has very important work right now. I think since we

00:22last talked, the digital asset market has grown tremendously. The market capitalization

00:28of digital assets has recovered to over $2 trillion, doubling from its recent low point.

00:34Bitcoin alone recently hit a record high of over $73,000. Despite this, there isn't really

00:43you tell me, you believe you need more statutory authority, correct?

00:48Senator, yes.

00:49Okay.

00:50There's a big gap.

00:51And so that's why we're having this hearing, which I appreciate that Congress must work

00:54in a bipartisan way to reinforce the CFTC's authority and ensure it has the necessary

01:00resources to protect consumers and maintain market stability. That includes considering

01:05legislation to regulate digital assets, protecting consumers and market participants while fostering

01:11innovation and ensuring a level regulatory playing field. That's how I think about it.

01:18So I know that some of this has been asked. I was at a hearing. We have a federal judge

01:24nominee in Minnesota. You don't really want to leave the Senate Judiciary Committee alone

01:29on its own when you have a nominee, so that's why I'm a little late here.

01:35You have previously discussed how the CFTC has a rigorous and deep disclosure regime

01:40for commodity market participants, including what they must share with investors. That

01:45differs from securities disclosures. It's also important to ensure consumers have sufficient

01:51disclosures about the underlying assets in addition to disclosures from market participants.

01:57Is that right?

01:58Correct.

01:59And, in other words, aren't disclosures about these assets as important as those about the

02:03entities trading them?

02:05Correct.

02:06Okay. Good. AI is set to become one of the most significant technological advances of

02:13our time. I think it was David Brooks who said he has trouble writing about it because

02:17he doesn't know if it's going to lead us to heaven or hell, and a lot of that is in

02:21our hands. It's great potential for innovation, but we have to put some rules in place, something

02:27that a group of Senators have been working on for months.

02:32We are already seeing the risk of AI in financial markets. In January, the CFTC issued an advisory

02:38warning against the risk of AI-driven crypto scams. Can you talk about the kinds of fraudulent

02:43activity you've seen with the use of AI in digital asset markets?

02:47Thanks, Senator. It's an extremely important issue, and quickly putting aside the AI customer

02:53advisory, we've done a lot of work ourselves on soliciting comment from the industry around

02:58how AI is being used in the market, and we're taking and reviewing those comments now to

03:02ensure that we potentially consider a rule or advisory or guidance ourselves.

03:07With respect to your question, what we've observed is really it's akin to a search engine

03:12where artificial intelligence is able to essentially track vulnerable investors, individuals across

03:18the country, and where they put their resources, how they invest their money, where they look

03:23on the internet, and are able to use artificial intelligence to essentially capture them at

03:28a vulnerable time. There's something called romance scams, which you may be familiar with,

03:33but this is really a very sad scam that's been going on for a number of years. I think

03:40the FBI noted just last year in 2023, there was over $3 billion of romance scams. This

03:47really is preying on the most vulnerable Americans who are looking for partnership and friendship

03:53and essentially stealing their life savings. We are very focused on that. We're working

03:57with our federal partners, but a lot of it, to your question, is driven by artificial

04:01intelligence and seeing where users are located, who has money, where they're banking, and

04:07then ultimately what their patterns are socially so that they can ultimately be taken advantage

04:13of. We're doing our best to prevent that.

04:15Very good. Crypto operates in two areas, correct? On-chain, decentralized users, and off-chain

04:22centralized institutions. Most of the proposed legislation focuses on centralized platforms,

04:28not on-chain. Are on-chain activities and DeFi harder to regulate, and do you have any

04:33recs for how we should approach DeFi?

04:37Senator, thanks. It's a really important question, and I'm going to use an example of what we're

04:41observing. It's still very early days, but a lot of more sophisticated large financial

04:46institutions are looking at on-chain transactions or on-chain technology as a means for payment

04:54processes and settlement. Settlement, you can imagine in a financial market, is extremely

04:58important, and a lot of financial institutions are looking at blockchain and on-chain transactions

05:04as a means to make settlement or payment processes more efficient. We are working with the industry,

05:10with other partners, and seeing how and in what way we intersect with that. There's definitely

05:16a regulatory nexus, but is it more difficult? It's certainly not centralized. The whole

05:23point of blockchain is to be decentralized. It raises very interesting policy and legal

05:29questions about what do we want to do from an elected legal perspective, but also from

05:34a regulatory perspective to properly regulate it, but not over-regulate it, because there

05:38could be potential innovations and efficiencies developed from it.

05:42Well, thank you. If I've learned anything around here, it's don't use the ranking member's

05:46time. So I'll maybe submit another question or two on record, but I'm very glad that the

05:53chairman and ranking are working on legislation on this. I think it's time to move, and I

05:58really, really appreciate you appearing before us. Thank you.

06:03Well, thank you so much. And last, and certainly not least, Senator Bozeman.

06:06You're always welcome. Always welcome to use our time.

Klobuchar Presses CFTC Chairman On Crypto Oversight: ‘You Need More Statutory Authority, Correct?’

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