CFTC vs SEC: Congress Called In To Settle “Turf War” On Crypto Regulation

A divide has emerged between two major financial regulators in the United States over the oversight of cryptocurrencies.

Rostin Behnam, Chairman of the Commodity Futures Trading Commission (CFTC), stated that under current laws, “many crypto asset tokens are classified as commodities.”

This contrasts with the view of the Securities and Exchange Commission (SEC) that many tokens should be considered securities.

Keypoints

• US CFTC Chairman Behnam reiterated that most cryptocurrencies are considered commodities under current laws, differing from the SEC’s view that many tokens are securities
• There is an ongoing “turf war” between the CFTC and SEC over regulatory jurisdiction of cryptocurrencies
• Behnam acknowledged deficiencies in the current regulatory framework and the need for Congressional action to provide more clarity
• The CFTC recently granted a clearinghouse license to crypto derivatives exchange Bitnomial, showing a stance to apply rules evenly regardless of technology
• SEC Chair Gensler believes current securities laws are adequate for regulating cryptocurrencies, differing from Behnam’s view that new regulations are needed

The disagreement over whether cryptocurrencies are commodities or securities has led to an ongoing “turf war” between the two agencies over regulatory jurisdiction. Both entities have increased scrutiny of crypto companies, but provide conflicting guidance on how tokens should be classified and regulated.

According to Behnam, the fragmented regulatory approach is problematic. “I have long believed that there are deficiencies in the regulatory regime that Congress is trying to address,” he said recently. Behnam has been advocating for new legislation from Congress that would provide more clarity on crypto oversight.

“It is figuring out how existing, decades-old law, fits into this new technology that seems to be changing and ultimately needs a new way of thinking around policy and legislating,” says @CFTCbehnam on #crypto. “Under existing law, many of the tokens constitute commodities.” pic.twitter.com/F3JPjWq3wG

— Squawk Box (@SquawkCNBC) December 12, 2023

Several bills have been proposed, including the Responsible Financial Innovation Act (RFIA), which would give the CFTC expanded authority to regulate cryptocurrencies as commodities. CFTC leadership has expressed the need to properly supervise the crypto market under a “clear and realistic regulatory framework.”

The push for Congressional action clashes with the view of SEC Chair Gary Gensler that existing securities laws give his agency adequate oversight capability. This disagreement over the need for new crypto-specific legislation contributes to the growing rift between agencies.

The divide could have significant implications for innovation and investment in the rapidly evolving cryptocurrency and blockchain industry. Clear policy guidance is needed to support responsible expansion of this sector in the US. Absent legislative resolution, the turf war may lead to a patchwork of conflicting agency actions that stunt progress.

The recent approval of a crypto derivatives clearinghouse license by the CFTC suggests it aims to move forward in support of the space. But debates between regulators with competing visions threaten market stability and long-term trajectory. Ultimately Congress will need to step up and settle the discord before it deepens further.