• The Commodity Futures Trading Commission (CFTC) is proposing a rule change to its Risk Management Program with respect to digital assets.
• CFTC Commissioner Christy Goldsmith Romero has commented on the risk associated with certain crypto investments, citing the failure of Silvergate Bank as an example.
• The CFTC has opened the proposal up for public comment for 60 days after publication in the Federal Register and could introduce a formal rule change leading to a vote among its leadership.

Proposal to Reassess Risk Management

The United States Commodity Futures Trading Commission (CFTC) is proposing a rule change to its Risk Management Program applicable to swap dealers and futures commission merchants with respect to digital assets. CFTC Commissioner Christy Goldsmith Romero commented on the potential risks associated with such investments, citing the failure of Silvergate Bank as an example.

Risk Factors

Romero noted that technological advancements come with accompanying risks that necessitate revisiting regulatory oversight, including risk management requirements. Such requirements would take into account any risks related to lines of business including digital asset markets. She further highlighted areas such as FTX, Terra and Celsius collapsing and rampant fraud and illicit finance as additional factors necessitating consideration of risk management requirements.

Public Comment Period

The CFTC will be opening the proposed rule change up for public comment for 60 days following publication in the Federal Register. After this period, the commission could introduce a formal rule change resulting in a vote among its leadership if deemed appropriate by members or outsiders who have submitted comments during this time frame.

Commissioner’s Take

Commissioner Romero has been vocal about investor protection when it comes to digital assets since she was sworn into office in March 2022, calling for appropriate oversight measures from the government body in order to ensure public trust and safety when investing in cryptocurrencies and other similar products or services. In April 2021 she proposed reducing anonymity surrounding certain tokens in order to protect investors from fraudulent activities within cryptocurrency markets while still allowing innovation within blockchain technology spaces.

Conclusion

The proposed amendment by the CFTC is likely driven by recent events involving crypto exchanges such as FTX, Terra and Celsius failing or being subject of fraudulent activities which ultimately resulted in investor losses or financial harm due potentially avoidable circumstances if proper oversight had been put in place beforehand. The CFTC is now seeking public input regarding these proposals over a two month period before deciding whether or not they should be implemented into law or discarded altogether due insufficient evidence proving their necessity at this point in time.

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