U.S. CFTC commissioner warns of dangers if crypto corporations self-certify

NEW YORK/WASHINGTON, Jan 18 (Reuters) – A high official with the U.S. Commodity Futures Buying and selling Fee (CFTC) on Wednesday plans to warn lawmakers towards permitting cryptocurrency exchanges to self-certify with the company to record merchandise for buying and selling.

The CFTC already permits self-certification for exchanges to record contracts for different merchandise, equivalent to commodities. Lawmakers had been contemplating an identical course of as a part of proposed crypto laws being hammered out final yr.

However CFTC Commissioner Christy Goldsmith Romero mentioned the method would open the door to “regulatory arbitrage” as some crypto belongings are possible securities that must be overseen by a distinct company, the Securities and Trade Fee (SEC).

“Oversight is critical to stop abuse” of the method, she mentioned, based on remarks ready for an occasion on the College of Pennsylvania.

Her warnings come as lawmakers regroup to draft laws to raised oversee the troubled crypto trade, which had a wave of bankruptcies final yr and continues to reel from FTX’s sudden collapse and alleged fraud.

Romero additionally raised questions in regards to the degree of due diligence corporations carried out earlier than investing in FTX, suggesting there may very well be incentives “to show a blind eye” to purple flags in a aggressive market.

Federal prosecutors have introduced expenses towards three of FTX’s former high executives, accusing them defrauding traders and misappropriating buyer funds.

The SEC can also be probing FTX traders’ due diligence, based on two sources acquainted with the inquiry.

So as to regain the general public’s belief following the FTX meltdown, the crypto trade ought to enshrine robust company governance and enhance the roles that gatekeepers like attorneys and compliance professionals play at firms, Goldsmith Romero mentioned.

“Gatekeepers ought to have significantly questioned the operational setting at FTX within the lead-up to its meltdown,” she mentioned.

Reporting by Chris Prentice; Modifying by Josie Kao

Our Requirements: The Thomson Reuters Belief Ideas.