Commissioner: CFTC Needs More Dialogue With Market Participants to Modernize Regulation

"It’s important for us to know certain facts, information [and] data about the company acquiring a registered market participant” to avoid another FTX debacle, Kristin N. Johnson said on CoinDesk TV.

AccessTimeIconJan 31, 2023 at 5:59 p.m. UTC

The Commodity Futures Trading Commission (CFTC) wants to talk with any company that owns a crypto unit in the United States, Commissioner Kristin N. Johnson, told CoinDesk TV’s “First Mover” on Tuesday.

“It’s important for us to have a relationship with the owner of any entity that is registered to operate in our markets,” Johnson said. “A culture of compliance often begins at the top.”

Johnson, who previously called on Congress to expand the regulatory agency’s authority to review crypto company acquisitions, said the failure of the FTX exchange highlights the need for more transparency from parent companies of U.S. subsidiaries registered with the agency.

“That culture is not solely part of what’s happening in the subsidiary but it's often influenced by what’s happening in the parents,” Johnson said. She pointed out the CFTC lacked the oversight power to investigate FTX, which was based in the Bahamas at the time it sought Chapter 11 bankruptcy protection in November.

She pointed to LedgerX – a U.S. regulated subsidiary – as one of the few units that survived the parent's collapse. In 2017 the New-York based firm applied to become a registered derivatives clearinghouse, meaning it was under the agency’s oversight and would need to comply with examinations and balance sheet verifications.

Despite continued debate about the agency’s authority in regulating crypto spot markets, Johnson said the issue at hand “isn’t a turf war,” but more about a business choosing to be a part of a “particular financial market ecosystem.”

“It’s important for us to know certain facts, information [and] data about the company acquiring a registered market participant,” Johnson said, adding that the relationship between the two is “a sacred tie.”

“The CFTC needs to engage in a dialogue with market participants to understand effectively how to modernize our regulation,” she said.

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