The Commodity Futures Trading Commission [CFTC] has proposed a re-modelled rule-set for risk management. The U.S. was in the of a banking crisis during the initial few months of this year. Before the bank failures, the federal bank regulatory agencies issued a joint statement outlining the “key risks” associated with bank involvement in the crypto asset sector.
In a statement, Commissioner Christy Goldsmith Romero chalked out that the existing Commission rules require that banks’ and brokers’ risk management programs “take into account” risks related to lines of business, like digital asset markets. Romero mentioned that she’s is currently interested in public comment on Risk Management Program [RMP] regulations. It covers areas like governance and structure, the risks RMPs must monitor and manage, and the specific risk considerations RMPs must take into account. The Commission intends to use the information and comments received to “inform potential future agency action, such as a rulemaking, with respect to the RMP Regulations.”
Romero specifically underlined that technologies like crypto, AI, and cloud services have emerged as areas that can carry “significant risk.” These advancements, with their accompanying risks, make it necessary for the commission to tweak regulations. “Integration of digital assets with banks and brokers, and the risks that could be posed, could continue to evolve,” she said.
Crypto and its inherent risks
“Many brokers” have shown an interest in becoming further involved in digital assets, the Commissioner further revealed. However, all bases need to be covered, for risks are inevitable. Outlining the same with respect to crypto, she said that risks can arise from “regulated trading in crypto derivatives.” On the other hand, the “unregulated spot markets carry additional risks.” The collapse of FTX, Terra Luna, Celsius and others serve as testaments to the same. Romero also went on to add “operational risks” and “risks associated with rampant fraud and illicit finance” to the equation. Further elaborating on the same, she said,
“For example, brokers may explore holding customer property in the form of stablecoins or other digital assets that could result in unknown and unique risks. These brokers may be confronted by third-party custody and other risks that should be identified and managed.”
The CFTC will accept public comments for 60 days on its advance notice of proposed rulemaking. The preliminary stage of the rule process will be succeeded by a formally proposed rule-set. The final version will then be finally voted upon.
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