Regulators have an “urgent role to play” in overseeing digital assets, including cryptocurrencies, according to the head of the Securities Industry and Financial Markets Association, a viewpoint that has only become more apparent in the wake of the FTX collapse.
SIFMA President and CEO Ken Bentsen stressed the need for such oversight during a “state of the industry” presentation and conversation with James Reynolds Jr., the chairman and CEO of Loop Capital Markets and chair of SIFMA’s board of directors.
While Bentsen said he was unaware of the details behind FTX’s travails beyond what is public knowledge, from his vantage point there had been a “clear lack of the traditional compliance regime” that applies in the securities and commodities markets, including the customer protection rule, segregation of assets and customer funds, and books and records requirements, as well as prohibitions of conflicts of interest and the commingling of funds.
To Bentsen, the FTX controversy underscored the need to impose regulation of digital assets similar to those that its members currently operate under as regards securities, and that can be built off existing regulatory frameworks.
“We have a principle that it really should be guided by ‘same activity, same risk, same regulatory outcome,’” Bentsen said. “We have an existing framework which works quite well, that we think can be applied, perhaps with some appropriate tailoring, to these new types of assets.”
Cryptocurrency markets hit a crisis point last month after FTX, the world’s second-largest crypto exchange, led by Sam Bankman-Fried, was left high and dry after the crypto exchange Binance withdrew from its prospective purchase of the exchange. FTX investors moved to pull their funds, sending the exchange (and crypto markets) into chaos. Bankman-Fried has since given a number of interviews with journalists while he remains in the Bahamas, and many expect civil and criminal charges could be forthcoming, along with greater pushes for regulation in the space.
Shortly before Bentsen and Reynolds spoke, the Senate Agriculture Committee held a hearing on the fallout of FTX’s collapse, in which Commodity Futures Trading Commission Chairman Rostin Behnam called on legislators to pass laws regulating crypto exchanges, according to The Wall Street Journal (the Journal also reported that Bankman-Fried had lobbied lawmakers in support of moving crypto oversight toward the CFTB and away from the SEC).
Additionally, a week after the FTX collapse, the Financial Industry Regulatory Authority (FINRA) launched a targeted exam into how firms handled communications on “crypto asset products and services” between July 1 and September 2022.
When speaking with Bentsen, Reynolds argued that SIFMA had been at the “vanguard” of calling for more substantial regulatory oversight in the crypto space, and said the organization was looking forward to working with the incoming Congress to deal with the issue.
“The FTX transaction has heightened the focus by regulators, as well as Congress on this issue,” he said. “And the number of individual, unsophisticated retail investors that are in this marketplace without adequate protection has given us a pathway to have a clear, strong dialogue with those that are going to be responsible for this area."