Sherrod Brown: How Will The CFTC ‘Look Out For Consumers’ In Crypto And Cyber Banking?

2 months ago

Before the Congressional recess, Sen. Sherrod Brown (D-OH) questioned the CTFC Chairman on cyber currencies during a Senate Agriculture Committee hearing.

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Transcript

00:00As you know, there is concern of everybody on this committee about crypto and what we

00:21do and making sure that consumers are protected. Some in this town are less interested in protecting

00:29consumers and investors than others. Big institutions usually dominate, as you know,

00:36the complex derivatives market that CFTC currently oversees. If Congress

00:42expands the CFTC's jurisdiction, how will the agency look out for consumers?

00:47Senator, thanks for the question. I think there's two components which I think are important,

00:52and I understand, appreciate, and I've heard the same concerns about the CFTC's jurisdiction,

00:57who our sort of main constituency is and how this would challenge us to sort of be a more

01:03retail-oriented agency. But I'll challenge that point in two ways. First, on enforcement,

01:08and then just generally on regulation. And I mentioned this earlier, but on enforcement,

01:13if you look at our enforcement record, really over decades, it's split into two major buckets.

01:19One is manipulation of markets, and then the other is fraud. And you could put noncompliance

01:25on the manipulation side. And on the manipulation side, that's typically what you're talking about,

01:28large financial institutions. This is, as you recall, and I'm sure Senator Grassley does as

01:33well, the committee at writ large, manipulation of large benchmarks. This is the LIBOR cases,

01:38which actually originated at the CFTC almost 15 years ago. Other off-channel or offline

01:44communications, big cases against large financial institutions. But on the fraud side of the ledger

01:49of enforcement, the fraud cases we bring are very typically retail-oriented. And I mentioned

01:55this to the chairwoman, typically Forex, which is foreign exchange fraud, is very retail-oriented.

02:02And also physical commodity fraud around metals, so specifically gold and silver. If you look at

02:07our fraud docket, most of it is retail-oriented. These are pump and dumps, Ponzi schemes, very

02:12typical boiler room type of fraud. And it is very typically directed at vulnerable retail

02:20investors. So over the course of decades, because of this very typical fraudulent activity

02:25directed towards retail investors, we've built a very robust Office of Consumer Education and

02:31Outreach. And we have a very vast network of partners at the state and local level,

02:37other regulators and law enforcement, to reach out to these local individuals who are vulnerable.

02:43As much as I appreciate if we do get authority, we're going to have to

02:47perhaps change the way we send word out through social media, the Internet,

02:51and interact with retail, I actually do think on the enforcement side we have a very strong

02:56record of retail enforcement in respect to the fraud cases that we've brought over many years.

03:04Thank you. Let me talk a little bit about hacks on some crypto platforms.

03:11We've seen hundreds of millions of dollars lost, there's no question.

03:15We need to protect consumers. What lessons have you learned, Mr. Chair,

03:19what lessons has CFTC learned from past breaches and hacks in crypto markets?

03:24Senator, thanks for the question. I think, you know, in many respects, these asset classes

03:29trade very similarly to other asset classes, stocks, bonds, and other futures contracts.

03:33But in many respects, and I think this really gets to the point of your question,

03:37the technology is very unique and different and forces us to ask very different questions

03:41around cybersecurity and operational resilience. So as we see these hacks which enable fraudsters

03:48and ransomware attacks to hold collateral or hold fiat money and use Bitcoin or cryptocurrency as

03:55ransom, we are doing everything we can to ensure that we both at the agency level, but as we work

04:02with market participants, think about cybersecurity and operational resilience as a priority in the

04:07space. Thank you. Thank you, Madam Chair. And Senator from Mexico, thank you very much.

04:12Absolutely. Thank you.

Sherrod Brown: How Will The CFTC ‘Look Out For Consumers’ In Crypto And Cyber Banking?

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