CFTC Seeks Greater Oversight of Crypto Acquisitions to Protect Investors

• The US Commodity Futures Trading Commission (CFTC) commissioner Kristin Johnson recently proposed several legislative changes that would give the regulator more authority to examine the financial records of any firm seeking to acquire a significant interest in any registered market participant.
• Johnson cited the example of derivatives exchange LedgerX, which became a subsidiary of FTX in August 2021 and is currently entangled in the collapse of the crypto exchange.
• Johnson proposed granting the CFTC the authority to investigate any business wishing to acquire 10% or more of a CFTC-registered exchange or clearinghouse, as well as formalizing crypto firms‘ obligation to segregate customer funds.

The US Commodity Futures Trading Commission (CFTC) has recently pushed for additional oversight of acquisitions in the crypto space. During a speech at Duke University on January 21st, CFTC Commissioner Kristin Johnson proposed several legislative changes to give the regulator more authority to examine the financial records of any firm looking to acquire a significant interest in any registered market participant.

Johnson cited the example of derivatives exchange LedgerX, which became a subsidiary of FTX in August 2021 and is currently entangled in the collapse of the crypto exchange. She noted that the regulator was unable to conduct any due diligence on whichever company was acquiring the business, and that it was merely a passive bystander during the exchange’s sale process. To address this issue, Johnson proposed granting the CFTC the authority to investigate any business wishing to acquire 10% or more of a CFTC-registered exchange or clearinghouse.

In addition, the commissioner advocated for expanding the commodities regulator’s authority to improve customer protection, deter liquidity crises, and reduce conflicts of interest. One of the issues she raised was the co-mingling of customer funds, which was one of the more egregious charges against FTX after its demise. Johnson suggested legislation that would formalize crypto firms‘ obligation to segregate customer funds, to prevent such liquidity issues in the future.

The CFTC’s proposed legislative changes would give the regulator more power to regulate the crypto space, and to ensure the safety of customer funds. While the proposed changes have yet to be approved, they are a step in the right direction towards creating a more secure and reliable crypto space.