CFTC strategic plan
Regulation

CFTC’s new strategic goals are good news for crypto… and bad

The commission wants a ‘holistic framework’ to promote innovation in digital assets, but it also plans to come down hard on those who break the rules

The Commodity Futures Trading Commission has released its strategic plan for 2020-2024.

When it comes to what this means for companies in the digital asset space, it appears to be a case of giving with one hand and taking with the other.

The goal that will be of most interest to crypto-focused firms is the third one: to encourage innovation and enhance the regulatory experience for market participants at home and abroad. This will undoubtedly be music to the ears of international businesses that have ended up being bogged down with red tape and regulatory uncertainty. (Telegram’s experience with the Securities and Exchange Commission springs to mind.)

“It is my view that the United States must lead the world in this technology, and applying overly prescriptive rules could stunt the development of this important market.”

Heath Tarbert, CFTC

Within the next four years, the CFTC is planning to develop a “holistic framework to promote responsible innovation in digital assets”—an approach to regulation that it hopes will address the risks and opportunities of 21st-century commodities in a more even-handed way.

Acknowledging that its decisions “often have a broad and deep impact on derivatives markets, the economy, and all Americans,” the commission is also vowing to increase the transparency of its decision-making processes—and eliminate measures where “the burden on market participants is disproportionate to the regulatory purpose served.”

Plans are also afoot to foster deeper coordination between the CFTC and the SEC. They call for consistent requirements that will be enforced across both organizations, reducing duplication for businesses that are dually registered across both bodies.

The CFTC regulates commodities and derivatives markets in the U.S., and the updated objectives come as Bitcoin futures and options become increasingly popular financial instruments.

Setting out the strategic goal in detail, the CFTC added: “How we regulate is just as important as what we regulate… Market regulation needs to keep pace and even lead, as our mandate to encourage responsible innovation is important to the nation. The CFTC must promote responsible innovation, avoiding rules and approaches reflective of business practices long gone.”  

But…

There’s little doubt that this strategic goal from the CFTC is heartening—and reflects an eagerness to adapt to changes in the marketplace. Discussing blockchain and digital assets in the Harvard Business Law Review last month, the commission’s chairman Heath Tarbert wrote: “It is my view that the United States must lead the world in this technology, and applying overly prescriptive rules could stunt the development of this important market.”

However, the devil is always in the details. The CFTC’s fourth strategic goal warns that it will “be tough on those who break the rules.” Between now and 2024, the commission plans to ramp up surveillance on products and markets where fraud and manipulation are seen to be most likely, increase collaboration with domestic and international enforcement partners, and develop “bright-line rules” to prevent market manipulation.

Its document added: “We recognize that the best way to preserve market integrity is by deterring potential bad actors from engaging in misconduct in the first place.”

This will likely mean that the CFTC’s laser-like focus on cryptocurrency is only going to intensify. As reported by Modern Consensus in December, policing digital assets has become one of its main goals—and from a financial standpoint, it’s a strategy that appears to be working.

The $205 million in fines it assessed in the 2019 fiscal year covered 80% of the agency’s $249 million budget, and the CFTC’s enforcement division managed to pull in $1.3 billion over this period—returning $1.1 billion of it to investors who had fallen victim to fraud and other crimes.

C Sephton is a journalist with an interest in cryptocurrencies, personal finance, and financial inclusion—as well as the challenges the crypto industry faces in achieving mainstream adoption. He owns cryptocurrencies.