CFTC’s Johnson Urges Congress to Expand Commission’s Crypto Oversight Powers

Kristin Johnson of the Commodity Futures Trading Commission wants to protect customers in a way that reduces the risk of future crises.

Kristin Johnson, Commissioner of the Commodity Futures Trading Commission (CFTC), has urged Congress to pass legislation that “closes the current gap in the oversight of crypto spot markets.”

Johnson proposed a number of amendments to a speech at a digital assets conference at Duke University on Jan. 21 that would allow the CFTC to conduct “effective due diligence” on businesses, including crypto firms, that want to acquire CFTC-regulated entities.

The commissioner also wants the commodities regulator to have more authority to protect customers, prevent liquidity crises, and mitigate conflicts of interest.

One of these potential changes would be to grant the commodities regulator new authority to investigate any company that wishes to acquire 10% or more of a CFTC-registered exchange or clearinghouse.

Johnson used the example of derivatives exchange LedgerX, which became a subsidiary of FTX on August 31, 2021 and is now entangled in the collapse of the crypto exchange.

The commissioner observes that the regulator currently lacks the ability to conduct due diligence on the firm that purchases the business and is merely a passenger as the transaction proceeds through the sales process.

Johnson also addressed customer fund co-mingling, which was one of the more egregious accusations levelled at FTX following its collapse, calling for regulation that formalises crypto firms’ obligation to segregate customer funds.

Another gap identified by Johnson was in risk management procedures, pointing to the contagion that has spread following major crypto company failures such as FTX:

“Interconnectedness among crypto-firms amplified by fragile or non-existent risk management, corporate governance failures, and conflicts of interests at individual firms fuels the likelihood of crises.”

In increasingly diverse markets, current “frameworks such as antitrust law and regulation may prove too limited in scope,” according to the commissioner, who advocates for “tailored and effective governance, and risk management controls.”