New US CFTC Regulatory Framework to Have a Major Impact on Digital Assets
The new regulation by the CFTC is designed to benefit digital currencies in the era of the growing involvement of cryptocurrencies in the derivative market
The United States Commodity Futures Trading Commission (CFTC) has released a new Regulatory Framework that will span through 2024. The framework comprises 5 strategic goals that aim to work for the interest of Americans by providing innovative regulations for commodity futures, swaps, and options markets. The CFTC in the framework acknowledges digital assets as “21st Century Commodities.”
The CFTC has an impressive position on digital currencies as Chairman Heath Tarbert has advocated a principle-based and not rule-based regulation for cryptocurrencies. The “principle-based” framework is poised to foster the vibrancy of the derivatives market while committing to ensure pan-industry compliance.
Timely Regulation in The Era of DeFi Boom
The blockchain ecosystem is gradually tilting towards a decentralized financial (DeFi) system and the introduction of futures into DeFi thus calls for complementary regulations. Actors in the DeFi space are developing tokenized derivatives to create a variety of ways to increase the value addition of the DeFi ecosystem.
The CFTC regulatory framework will also help guard against the high risk involved in future and forward contracts. Taking steps to avoid systemic risk will not only protect market participants but increase confidence in the soundness of the entire U.S. derivatives markets.
The CFTC Strategic Frameworks
The CFTC has adopted 5 interrelated strategic frameworks that will help deliver the agency’s innovative regulation goals. The first Strategic Goal seeks to solve the dual problem of protecting the derivatives market while also making it more attractive for investors. Protecting these markets will bolster confidence in their integrity. The second goal will help deepen the agency’s commitment to the agricultural sector, the protection of customer’s access, and enabling access to information. This goal will also seek to educate Americans on the derivatives market in general.
Strategic Goal 3 borders more on cryptocurrencies as it aims to bolster innovation by serving as a liaison with other regulatory agencies like the SEC.
According to the statement:
“Financial markets quickly adopt emerging technologies, and our derivatives markets have experienced an amazing digital transformation that presents opportunities as well as risks. Market regulation needs to keep pace and even lead, as our mandate to encourage responsible innovation is important to the Nation”
The fourth goal will seek to enforce the strict compliance with the laid down regulations as it has done over the years, rounded up $1.3 billion in penalties in 2019. The last goal will give room for flexibility within the CFTC to improve its operational efficiencies in the duration covered by the framework.
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