Commodity Futures Trading Commissioner Caroline D. Pham discussed crypto regulation and customer protections with CNBC at the DC Blockchain Summit on May 24 and with Yahoo! Finance Live last week.
On shadow banking:
“For Commissioner Caroline Pham of the Commodity Futures Trading Commission, the UST meltdown highlights just how much action regulators need to take to protect against a possible return of shadow banking — that is, a type of banking system in which financial activities are facilitated by unregulated intermediaries or under unregulated circumstances. Pham says a lot of existing safeguards could do the trick. “‘It’s always faster to stand up a regulatory framework when it’s already existing,’ said Pham. ‘You’re just talking about extending the regulatory perimeter around newer, novel products.’”
“’The key question that regulators and lawmakers need to address is whether stablecoins, including the subset of algorithmic stablecoins, are in fact derivatives,’ says Pham…. ‘The SEC regulates securities, but for everything that is not a security, the CFTC probably has some regulatory touchpoint over it…. We have the regulation over derivatives based on commodities, but we also have certain areas … where we directly regulate spot markets,’ said Pham. ‘The last time we had…something blow up like this in the financial crisis — risky, opaque, complex financial products — Congress came up with a solution for that, and that was with Dodd-Frank,’ continued Pham, referring to the Wall Street Reform and Consumer Protection Act, passed in 2010 in response to the Great Recession.”
On customer protection:
“‘If people started to think about some of these really novel crypto tokens as frankly, lottery tickets, when you go and you buy a lottery ticket, you might strike it big, and get rich quick, but you might not,’ said Pham. ‘I think what I’m worried about is that without appropriate customer protections in place, and the right disclosures, that people are buying some of these crypto tokens thinking that they’re guaranteed to strike it rich,’ she said.”
On crypto regulation: “It’s so clear with the blowup in Terra and the knock-on effects to broader crypto markets that regulators cannot fail to act any longer to do something to make sure we’re protecting the retail public, especially when you’ve had billions of dollars in value destroyed. And that’s why I said in my op-ed, together with SEC Commissioner Peirce, that we really need to call for public roundtables to examine what exactly happened, get the input and the expertise of the public, and how do we do responsible and pragmatic crypto regulation so that way this doesn’t happen again in the future? I mean, Congress is working on solutions to try to make sure we have a holistic crypto regulatory framework in the United States, but we can do a lot right now to address this problem, tackle it together, and find a solution to protect the public…. So I really welcome the efforts of Congress to provide a clear and holistic regulatory framework over crypto, and to make it very clear and even to expand the CFTC’s jurisdiction in this space, to make sure that there’s that clarity for the industry so that way there can be more growth in compliant digital asset markets with adequate protections for the retail public.”
“[I]t’s very clear that we have fraud and manipulation authority over those [crypto] spot markets. That’s why we’ve brought over 50 enforcement actions with about, you know, $750 million in penalties…. it’s bread and butter for the CFTC to be policing the fraud in the swaps markets [as well]. We’ve brought over billions of dollars in actions, and even just this week we announced a $1.18 billion penalty and recovery, the largest ever in the CFTC’s history. So we’re very strong on enforcement, but also we are monitoring and surveilling the markets constantly.”
Watch the interview and read the transcript here.