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March 18, 2024

CFTC Must Do More to Combat Financial Crime in the Derivatives Markets

Better Markets filed a comment letter with the Commodity Futures Trading Commission (CFTC) in response to a proposed rule that aims to establish safeguards for the funds and assets of clearing members in the event of a derivatives clearing organization (DCO) declaring bankruptcy.

Why It Matters: The recent proposal by the CFTC to protect customers from bankruptcies in the derivatives market falls short of addressing the full range of risks, including combatting financial crime. The rule’s limited focus on segregating customer funds, though important, fails to address money laundering, leaving a gaping hole in the regulatory framework, especially when retail customers interact directly with clearing houses as opposed to intermediaries, where there already are serious protections against these crimes.

What We Said: The CFTC’s attempt to address the repercussions of the FTX bankruptcy by proposing rules to protect DCOs’ clearing members is a good, although very limited idea. However, fully collateralized direct-to-consumer marketplace simply must have the full panoply of customer protections. The proposed rulemaking does not do this and, therefore, instead of seizing the opportunity to make comprehensive changes, the CFTC has adopted a piecemeal strategy that will require additional modifications in the future if customers are to be adequately protected.

Bottom Line: The proposed rulemaking should have provided parallel protections for customers of intermediaries and clearing members while also preventing criminals from using the financial system for illegal activities like money laundering and funding terrorism.

You can read our full public comment letter here.

Comment Letters

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