It has been a turbulent time in the cryptocurrency market, and Commodity Futures Trading Commission (CFTC) Commissioner Kristin N Johnson this week stressed the need for the agency to start using its existing powers to strengthen requirements for keeping users’ digital assets safe.
“Liquidity crises and a lack of responsible governance at cryptocurrency exchanges and other prominent crypto-intermediaries have roiled the digital asset ecosystem,” Johnson said in a statement. “A series of bankruptcy filings reveals a grim portrait of some of the most egregious corporate governance and risk management failures in recent financial markets history.”
Encourage CFTC further
Johnson believes that recent events should encourage the CFTC to “take two steps with all deliberate speed”. She wants the agency to use “existing authority to further mitigate potential risks to all customer assets held by all current registrants or licensed participants operating in our markets, as well as prospective registrants”.
The statement comes after the CFTC sanctioned yet another crypto industry player, Jeremy “Coin Signals” Spence, who was imprisoned earlier this year on a 42-month sentence for defrauding investors of $5m.
The CTFC has, in certain regulated market activities, laid out customer protections that require the segregation of customer assets.
But beyond relying on fraud and market manipulation enforcement actions, Johnson says that they should “explore ways to ensure that these rules apply in the context of proposed alternative market structures as well”. The Commissioner says that such efforts would close a regulatory gap and ensure that a parallel standard applies to segregation of all custodied customer assets or customer property.
Due diligence important
Johnson raised the alarm five years ago, when she said she believed that events like these might unfold in markets and across multiple jurisdictions. “Infrastructure challenges, consumer protection concerns, mismanagement, misconduct, fraud, market manipulation, and predatory trading tactics throughout the crypto-ecosystem may present a clear and present danger for customers and creditors and, depending on correlations and the creep of contagion, threaten the integrity of traditional financial markets.”
Johnson also predicts a future wave of mergers and acquisitions in the cryptocurrency market. “As we unravel the tangled web of interconnected financial transactions and relationships among cryptocurrency trading platforms facing liquidity crises, we should anticipate a season of mergers, acquisitions and consolidation,” she said.
She also addressed the importance of due diligence and acquisition processes, and said that they need to ensure effective competition among all parties in the cryptocurrency ecosystem.
