Digital Asset Derivatives Now Need to Comply with CFTC Advisory

The United States Commodity Futures Trading Commission (CFTC) took a step toward regulating digital asset derivatives. The agency recently released a staff advisory letter for derivatives clearing organizations (DCOs) and their applicants.

CFTC’s Division of Clearing and Risk (DCR) issued the digital assets-focused advisory for these derivative organizations on Tuesday, May 30. It intends to remind these entities of the risk involved with their expansion activities.

The advisory letters cited the actively growing crypto industry and its risks. It was written to remind the derivative organizations of their responsibilities. It noted their legal obligations to look for potential emerging risks and clarify those obligations.

DCOs and applicants were expected by the DCR to keenly look for and “identify new, evolving, or unique risks.” And it also emphasized applying “risk mitigation measures” to deal with them.

In the letter, the agency specified the critical areas for the agencies to take care of. It included the safety of the system, conflict of interest, and offerings of physical deliveries.

The rising “cyber and other operational risks” in the digital assets sector make it a compulsion to seek to safeguard the systems. In addition, the dependency on “affiliated entities or services” acts as a potential conflict of interest. Physical delivery, or the services, included the ownership rights transfer or simply moving the digital assets across the crypto wallets.

Call for Digital Asset Regulations

The CFTC Commissioner, Kristin Johnson, expressed her will to turn the issuing of advisory letters towards full-fledged written crypto regulations. She insisted on the agency for a formal process of setting up new rules and regulations.

In her statement, Johnson said, “We observe increased registration activity for crypto-commodity derivatives clearing and note that several proposed models adopt a non-intermediated market structure. Unless we introduce parallel regulation, these crypto-commodity derivatives clearing models may not be subject to the most rigorous regulatory standards.”

CFTC oversees the derivatives clearing organizations, including the recently added LedgerX—a digital assets futures and options exchange and clearing house. Earlier, the company was a subsidiary of FTX.US, which MIAX recently bought.

Mostly when any financial regulator brings new warnings on any operations or entities, some sanctions or related actions follow along. Though there’s no instance reported till now, the futures and derivative regulator is already amid a tussle with crypto companies, especially regarding the enforcement against prominent crypto companies.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing