The Commodities Futures Trading Commission seems to be gaining the upper hand in its turf battle to regulate U.S. cryptocurrency transactions, which could potentially overwhelm the agency’s staff and budget
A bipartisan bill sponsored by the leaders of the Senate Agriculture Committee and introduced in July gives the CFTC the lead role in spot trading of bitcoin and ethereum, which dominate the crypto market by value. Previously introduced Senate legislation also emphasizes the CFTC’s role.
The Securities and Exchange Commission has been seeking a voice, at least over the smaller coins, many of which it considers securities rather than commodities. This could mean crypto exchanges being forced to register with the SEC as broker-dealers, even if the CFTC gets the bulk of the responsibility.
Coinbase, a leading cryptocurrency exchange, told the SEC in July that the agency’s existing registration rules would be onerous for digital assets. In a letter to the commission, it said: “For those digital assets that are securities, registration under the current rules is, for many market participants, either not possible or not economically viable given the associated and unnecessary compliance burdens.”
The crypto industry seems to prefer the CFTC, whose oversight of established commodities markets is less concerned with protecting retail investors than the SEC’s regulations for securities like stocks.
Since late last year, CFTC Chair Rostin Behnman has been vying for authority to regulate digital commodity spot markets, which is where assets directly change hands without a middleman.
Behnman may be biting off more than he can chew.
“They’re undermanned and would be totally overwhelmed without a substantial allocation of new funding from Congress,” says Carol Van Cleef, who leads the blockchain and crypto practice at the Bradley law firm in Washington.
The CFTC employs roughly 700 people and has a current budget of about $1.47 billion a year, while the SEC has almost 5,000 staffers and gets $2.65 billion of funding. Still, all of the current funding for both agencies is already spoken for, so additional money would have to be found.
“The SEC may be three times as big as the CFTC. But you know, everything they’re doing is already coming out of their budget they got, they have three times the amount of work to do,” says CFTC Commissioner Chris Giancarlo.
If Congress grants the CFTC official authority in a completely separate piece of legislation, it will have to give it the additional funds. And the same applies for the SEC,” says Giancarlo.
The additional funds, or appropriations, needed to regulate crypto may not be a simple ask from either of the agencies because of the hefty sums that might be needed to regulate the industry.
However, some of the legislators are pushing for the regulators to levy fees to regulate cryptocurrency as opposed to seeking budget appropriations.
The first of the two Senate bills, sponsored by Kirsten Gillibrand (D-NY), a member of the Senate Agriculture Committee, and Cynthia Lummis (R-WY) who is on the Banking Committee “creates opportunities for industry to directly file with agencies like the CFTC and the SEC, but also allows those agencies to set up their own fee structure in order to accomplish regulation,” says a source familiar with the legislation.
It remains to be seen how market participants would react to being required to pay for their regulation.