U.S. CFTC commissioner warns of risks if crypto firms self-certify

NEW YORK/WASHINGTON, Jan 18 (Reuters) – A prime official with the U.S. Commodity Futures Buying and selling Fee (CFTC) on Wednesday plans to warn lawmakers in opposition to permitting cryptocurrency exchanges to self-certify with the company to checklist merchandise for buying and selling.

The CFTC already permits self-certification for exchanges to checklist contracts for different merchandise, equivalent to commodities. Lawmakers had been contemplating an identical course of as a part of proposed crypto laws being hammered out final 12 months.

However CFTC Commissioner Christy Goldsmith Romero stated the method would open the door to “regulatory arbitrage” as some crypto belongings are probably securities that have to be overseen by a unique company, the Securities and Alternate Fee (SEC).

“Oversight is important to forestall abuse” of the method, she stated, in line with remarks ready for an occasion on the College of Pennsylvania.

Her warnings come as lawmakers regroup to draft laws to higher oversee the troubled crypto trade, which had a wave of bankruptcies final 12 months and continues to reel from FTX’s sudden collapse and alleged fraud.

Romero additionally raised questions in regards to the stage of due diligence corporations carried out earlier than investing in FTX, suggesting there may very well be incentives “to show a blind eye” to pink flags in a aggressive market.

Federal prosecutors have introduced prices in opposition to three of FTX’s former prime executives, accusing them defrauding buyers and misappropriating buyer funds.

The SEC can also be probing FTX buyers’ due diligence, in line with two sources conversant in the inquiry.

With a purpose to regain the general public’s belief following the FTX meltdown, the crypto trade ought to enshrine sturdy company governance and improve the roles that gatekeepers like attorneys and compliance professionals play at corporations, Goldsmith Romero stated.

“Gatekeepers ought to have critically questioned the operational atmosphere at FTX within the lead-up to its meltdown,” she stated.

Reporting by Chris Prentice; Enhancing by Josie Kao

Our Requirements: The Thomson Reuters Belief Ideas.