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US Senate Committee Hearing on FTX Failure Brings to Light Gaps in Regulatory Authority

Published on

February 1, 2023
Read Time:2 Minute, 19 Second

United States Commodity Futures Buying and selling Fee Chairman Rostin Behnam informed a gathering of the Senate Agriculture, Meals and Forestry Committee on Dec. 1 that his company's laws "embrace core components which have served markets for many years." However because the fallout from the FTX collapse is being clarified, notable loopholes within the present laws have come to mild, Behnam and the senators agreed.

Sen. Tina Smith known as the FTX collapse "stunning, not stunning" and mentioned that so long as there are regulatory loopholes, crises will live on. Behnam identified that the Securities and Alternate Fee has the ability to require fundamental safeguards, comparable to B. the separation of home and buyer funds and the very best execution of funding transactions.

"We all know how to do this," Behnam mentioned. Nonetheless, in his opening speech he mentioned:

“The questions all of us, as regulators, should reply is invariably, 'How did you let that occur?' and 'How will you forestall this from taking place once more?' […] With out new powers for the CFTC, gaps stay in a federal regulatory framework, at the same time as different regulators act inside their present powers.”

Behnam has been campaigning for extra authority for his company for months. He alluded to alleged conflicts between the CFTC and the SEC when dismissing speak of a "seizure of energy." The cooperation between companies just isn't new and can proceed, Behnam mentioned. Increasing CFTC authority is about "filling a niche."

"I feel the duties can be the identical" between the SEC and the CFTC with intensive regulation, and CFTC regulation works properly when relevant.

Behnam pointed to crypto derivatives and clearing platform and FTX subsidiary LedgerX as examples of profitable CFTC regulation. However, "We on the CFTC haven't got the authorized authority to ask about an unregulated entity," Behnam informed Senator Tommy Tuberville with no whistleblower. As well as, Behnam informed him:

“We merely should not have the authority to register money exchanges […] That is the hole."

Tuberville additionally famous that score companies have given FTX excessive governance scores. Can they be sued, Tuberville requested. Score company oversight is one other "potential hole," Behnam replied.

CFTC Chairman Behnam says DCCPA prevented FTX collapse.

DCCPA would apply to a Bahamian change? https://t.co/5RTpBZravM

— Miller (@millercwl) December 1, 2022

Sen. Kristen Gillibrand, co-author of the Accountable Monetary Innovation Act with Sen. Cynthia Lummis, informed Behnam that there are "a few areas the place I nonetheless see dangers." Mergers and acquisitions was one such space. The CFTC paperwork to provoke LedgerX's FTX acquisition amounted to "a memo" at finest, Behnam acknowledged.

It additionally raises questions in regards to the affect of overseas corporations on the US and US corporations buying and selling offshore, Gillibrand added.

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Azeez Mustafa
Azeez began his FinTech career path in 2008 after growing interest and intrigue about market wizards and how they managed to become victorious on the battlefield of the financial world. After a decade of learning, reading and training the ins and outs of the industry, he’s now a sought after trading professional, technical/currency analyst and funds manager – as well as an author.
Last Updated : February 1, 2023
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