WASHINGTON, D.C.— Dennis M. Kelleher, Co-founder, President and CEO, issued the following statement regarding the CFTC Chair’s attempt to push Congress into quickly passing crypto-friendly legislation:
“The CFTC Chair is using scare tactics (i.e., if you don’t act, there’s going to be a crisis) to push Congress into blindly passing crypto-friendly legislation that installs a weak regulator as quickly as possible, even before anyone has examined how that regulator, the CFTC, has already failed to do its job to regulate FTX and before anyone even knows how FTX imploded, much less how that might have been avoided by new legislation. The Chair’s relentless attempt to get Congress to put him in charge of crypto regulation is rash and reckless, particularly considering his reported comments that the legislation should be passed “no questions asked.”
“Ironically, the crisis the Chair claims he wants to avoid may be much more likely if the crypto-friendly, if not crypto-written, legislation he’s pushing were to pass. That’s because it would legitimize crypto and would almost certainly make this extraordinarily dangerous market sector much more interconnected with the core of the financial system. That would lead to crypto-crisis contagion spillovers into the banking system, a broader financial crash, and taxpayer bailouts, as detailed in this Fact Sheet.
“While the CFTC Chair may be right in suggesting there’s too little “visibility” into FTX’s global operations, that doesn’t excuse the CFTC from apparently failing to use what visibility it had and seemingly turning a blind eye on FTX’s US operations. Also, there is no indication that the CFTC even tried to leverage its existing authority to expand its visibility and aggressively use the authority it does have to see more. Additionally, the CFTC had much more power than its view into FTX’s US operations because FTX had submitted its pending auto-margin, auto-liquidation proposal to the CTFC. Given the materially deficient application to radically change clearing in the US, which depended almost entirely upon the financial resources of FTX, the CFTC could have and should have demanded much greater information from FTX (as Better Markets specifically urged it to do multipletimes). That it turn might have equipped the CFTC with the data and insights necessary to better anticipate if not mitigate the impact of the FTX collapse now unfolding. We’ll never know.
“Instead of doing its job over the last year, the Chair is urging Congress to quickly give FTX and the crypto industry what they have been desperately seeking all along: (1) the smallest, least funded, least capable regulator, the CFTC, to have primary jurisdiction over the industry, and (2) access to and interconnection with the banking system to receive Federal Reserve (i.e., taxpayer) bailouts when the industry gets into trouble. The facts show that the industry is right about one thing: The CFTC’s failure to regulate and supervise FTX US, it’s ready endorsement of industry-friendly bills (which would also cripple the SEC, another primary industry goal), its overly warm reception for FTX’s application to dangerously change clearing structure and operations, the Chair commenting to boost Bitcoin prices, among other pro-crypto actions and statements, would all seem to support the industry’s view that the CFTC would be the most friendly and capturable regulator possible. That may be what the industry wants, but that should be the opposite of what a CFTC Chair should want.
“In light of these failings and deficiencies, the conduct of the CFTC related to FTX must be fully and independently investigated without limitation and the results publicly disclosed in detail. That investigation must include the actions of the many former CFTC officials who appear to have been using their insider knowledge to give the crypto industry special access and influence at the CFTC. Only after that is done—and there is a more complete understanding of FTX’s collapse—would it be appropriate to determine what, if any, regulatory and legislative gaps need to be addressed and who would, in fact, be a crypto watchdog rather than a crypto lapdog for this volatile and high-risk industry.”
These and many other issues related to the CFTC and the FTX collapse are detailed in this Fact Sheet, in our comment letter opposing FTX’s application to dangerous change the clearing process, in our letter to the CFTC detailing the deficiencies in its FTX roundtable, in our release identifying questions for the roundtable, in our release calling for FTX to withdraw its application, and in our release regarding the CFTC’s supervision of FTX.
Better Markets is a non-profit, non-partisan, and independent organization founded in the wake of the 2008 financial crisis to promote the public interest in the financial markets, support the financial reform of Wall Street and make our financial system work for all Americans again. Better Markets works with allies—including many in finance—to promote pro-market, pro-business and pro-growth policies that help build a stronger, safer financial system that protects and promotes Americans’ jobs, savings, retirements and more. To learn more, visit www.bettermarkets.org