Though the crypto industry is a sliver of the overall U.S. financial system, the “growing interest by traditional finance” firms should put regulators on notice of dangerous risks to come, said Christy Goldsmith Romero, a commissioner with the U.S. Commodity Futures Trading Commission.
“Financial stability risk will increase and could rise to the level of systemic risk if, in the future, there are greater interconnections between the crypto industry and traditional finance players performing critical market functions,” the commissioner said Wednesday at an International Swaps and Derivatives Association conference in New York.
Just as other current U.S. regulators have argued, the crypto industry echoes certain elements of finance in the runup to the 2008 global meltdown, said Goldsmith Romero, who is the lead commissioner for the agency’s technology advisory committee.
“Cryptocurrency was supposed to break from the traditional financial system, and all of its fragility and vulnerabilities,” said Goldsmith Romero, who occupies one of the Democrat-appointed seats on the five-person commission that oversees derivatives trading. “However, this spring unregulated crypto markets revealed their vulnerabilities to similar financial stability risks as traditional finance, with parallel themes from the 2008 financial crisis.”
While suggesting the U.S. shouldn’t rush regulations, she did offer the CFTC as the answer for dealing with the industry’s risk.
“Congress can address financial stability risks by providing additional authority to the CFTC,” she said, supporting a “same risk, same regulatory outcome” approach to establishing crypto rules that would treat the industry the same as other sectors of the financial system.
The CFTC is gaining momentum in Congress to become the primary regulator for crypto trading in multiple bills that would give CFTC the authority over the spot market – or the markets in which the actual tokens trade between investors.
Goldsmith Romero recently told CoinDesk she’s also working on proposing a new definition for "retail investors" in crypto, as the CFTC is poised to potentially start policing a wide swath of digital assets trading. The new definition would require more safety measures for non-professional investors at the lower end of the spectrum.
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