Oct 24, 2023

As part of CoinDesk's State of Crypto 2023 event in Washington, D.C., CFTC Commissioner Summer K. Mersinger shares insights into the state of U.S. crypto regulation and also explains why she's "not surprised" about spot bitcoin ETF excitement fueling market optimism.

Video transcript

Federal regulators are facing the challenge of navigating a rapidly changing industry with rules that might not be evolving at the same pace. Our first guest is that guest is at the helm of the US Comandi Futures Trading Commission, steering the agency at a pivotal time. Joining us now is CFTC Commissioner Summer Mer singer. Welcome to the show summer. Thanks for having me. Well, I got to get your thoughts right off the top of the show of this ETF excitement. You heard the markets check right there, Bitcoin up over 12%. What do you make of this? Well, we've had um the Bitcoin features um trading for quite a while and I know there's an ETF you know, that's been been trading on that for quite some time. So, and we've seen more and more popularity. So I'm not surprised that this is, you know, causing a spike, I think uh there's a lot of interest in these products and you know, the market's ready um for these products to be available. You know, some are really attributing this to more institutional interests, more institutional demand. How are you thinking um about the regulatory side of things with these trad five players really wanting to jump into the space right now. Yeah, I think it is um just a demonstration that, you know, there, there is institutional um interest that there's traditional finance that's interested and so these products aren't going away. So I think, you know, there was a thought at some point by regulators that this was almost a fad that people would move on. Uh And the more we see traditional finance stepping in and, and really investing, it's just further proof that these products aren't going away the interest and the um desire to invest money in digital assets and uh decentralized finance. Um It's, it's not going to, to be a fad. Uh it's here to stay. What kind of questions are tr five players asking the regulators right now as they are attempting to comply with new and innovative crypto products? Yeah, I, I think a lot of the questions are, you know, what do we need to do to make sure we don't run afoul of the rules. How do we stay within the regulatory um confines and not go outside of what is allowed? And that gets tricky because I think in some of these markets, we really haven't provided clarity to say what is allowed and what's not. So it, it's really just a question of, you know, provide us some clarity, let us know what we should be doing. Um Let us know how it's how we can be investing and, you know, it's, it's now on us to provide the clarity that the markets need, what needs to happen, to achieve that clarity. You know, we, we, we know it's on the regulators, it's on the lawmakers, but what needs to happen next? It feels like we're in a little bit of a wreck here. Right. Right. Well, and, you know, I think there is, of course, you know, the need for, um, legislation, we, we need Congress to provide some sort of statutory framework for regulation in the spot market. But in the meantime, it, if we're bringing enforcement cases, which we are, then there's something we can be doing at the agency level as well. And to me, if we're gonna be bringing enforcement cases, we're going to be saying to some of these, um, entities you're violating, you know, CFTC regulations, we need to outline those regulations and what it means to comply. And I often get frustrated because we will bring an enforcement case and say you're not complying with our regulations. But then when you ask the question, what could they have done to comply? There's no answer. So, are you leaving these, we're kind of leaving the industry with the choice of, you know, either, you know, don't comply at all and continue doing what you're doing and, and risk a vi another violation or just shut down completely. And that's not ideal. And eventually we'll see, um, this this market move overseas. Yeah. So, in a way, I guess bringing enforcement actions it may be putting the cart before the force. Is that how you, is that how you feel? I think so. I, I think of it a lot. Um, I have poor kids and in my mind, um, you know, they need to know the rules before I can discipline them for breaking the rules. So I need to clearly lay out the rules and how they can, how they need to follow them before I, you know, bring in, um, you know, my grounding or taking away phones or whatever they need to know what those rules are. This is no different if we're going to bring an enforcement case, we need to be able to say here are the rules that you need to follow and here's how you can follow them. We've spoken about trad I uh you recently wrote a dissent when the CFTC brought enforcement action against 3D FI companies, talk to us about the dissent. Um And your perspective on bringing that enforcement action against defi Yeah, I, there were a number of concerns I had with this action. Um You know, going back to what I just said a lot of it was we were um bringing actions saying that they fail, failed to register as um certain registration categories at the agency that there was really no path forward for them to register as such. And we were you know, suggesting that, you know, they needed to do more to keep us customers off the protocol, but we didn't really lay out what that was. Um And I was also a little frustrated because we brought these three cases before the commission as a package and they had different charges. And so to me, you know, we were kind of packaging it to get the uh headline, you know, the DFI sweep. Um and it's a little unfair because I think each entity had their own uh challenges and their own charges. And, you know, if we're going to be bringing these cases, we need to publicly say what we're doing and why and I think individually um focus on each, you know, different protocol and what they did wrong and why we're bringing the case versus try to get the splash with the headline one of the other cases. Um Well, I guess newsworthy headline where the cases has been the CFT case against Finance. Finance, um issued a court filing in response to that on Monday, basically saying, and now this isn't a direct quote that the CF DC doesn't have jurisdiction over the rest of the world. Uh How do you respond, respond to that? Well, admittedly, I have not had a chance to read their response yet. Um and I, I'm very limited in what I can say on active enforcement cases. Uh But it, I, what I will say is when it comes to the enforcement authority we have at the CFTC. While we do not have spot market regulation, we do have broad enforcement authority when it comes to fraud and manipulation in market in commodity markets. And that the, um, that's the enforcement power that we're using here. And it really is, again, it's very broad and you know, if there are us persons, us markets involved, we do have that authority to go in and make fraud and manipulation charges. You bring up us persons. And I I've seen companies in this space to operate outside of the US. But us customers can access their products in various different ways. How do you define or determine if us persons are involved in a company that doesn't actually operate in this in the US and make their products readily to us citizens. And I think that's an area area where we could provide some clarity. Um I, we, we see a lot of cases where um you know, the claim is they were not offering their products to us persons that they have disclosures or disclaimers on their website saying us persons cannot access yet. There are, you know, there have been in instructions on, you know, how to get a VPN and and hide your um your location. So in fact, we've seen a number of cases where you know, the the claims are, us, persons aren't allowed. And then there might be a youtube video from the founder saying exactly how a US person can access the market. So right now, it's very facts and circumstance based when we bring enforcement cases. But I do think we could probably offer for some clarity here and say to companies, here's what we expect you to do to keep you as customers out of your markets, um to avoid having us come after, you know, come in and, and, you know, bring our enforcement authority um into the activity that you're, that you're involved in some of the bills that are pending in the House. And the Senate name, the CFTC is the regulator that may move forward with enforcing legislation as it comes to fruition. Some of it requires you to work with SEC. How do you, how do you think about that, given the enforcement actions that the SEC has done so far and some of their comments about the space and the existing legislation, do you think that the CFTC and the SEC can work together to provide the industry more clarity? Yeah. In fact, we have a long history of working together and, you know, this wouldn't be the first time where there's questions of overlapping jurisdiction. Um, we've had to sit down before and go through, um, you know, where different products fall. Uh, certainly after Dodd Frank, we, we spent a lot of time working on this, you know, um, you know, with, with some of the broad based uh, swaps. So this wouldn't be the first time the CFTC had to sit down with the SEC and create a framework and really give clarity as to whose, you know, jurisdiction is involved. And we have a number of um registered entities that are registered with both agencies that where we have, you know, kind of uh you know, simultaneous uh regulation or regulatory responsibilities. So it's not, you know, uh it's not something we haven't done before, it's not something we can't do. And I think that, you know, we, that's what needs to happen here. What does the CFTC need in terms of resources to properly oversee uh the crypto industry? That's a really hard question to answer. Um You know, I think some of it is getting the jurisdiction and seeing what that means as far as the size of the market. Um what additional tools and um you know, talent, we would need to oversee uh some of these, these spot markets. So it's, it's hard to put a value on it. Um I think we can all agree we would need more resources. Um You know, there's been some question around you could, could there be industry fees to cover it? I think that's something we would have to look at. Uh and really try to, to work with Congress on how to uh create a program where that would work. But I, at this point, you know, it's, it's very difficult to say what that would look like. I do always point back to after Dodd Frank, we took on a very large, you know, new regulatory remit at the agency with almost no growth. So this would not be the first time the agency has had to take on a lot more responsibility without adding a lot of staff and resources. So we kind of pride ourselves on being lean and mean and um you know, go reaching well beyond and, you know, are, are well beyond what you would expect from a small agency. All right, we got to wrap, but I wanna quickly get your perspective here. We recently saw an approval for an E futures ETF uh A judge in the coin base case also said that it is a commodity is a commodity as far as I have heard it is a commodity. Um We've, we've had former CFTC chairman state that we've had court cases that state that um and I don't know what would change to um make it anything else. We also have futures products training on E um So in my mind, it's, it's a commodity summer. Thanks so much for sitting down with us and good luck with the rest of the day. Thanks for having me. That was CFTC Commissioner Summer merger.

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