Senate Ag CFTC Nomination Hearing
Senate Agriculture Committee
Wednesday, March 2, 2022
- The hearing focused heavily on digital asset regulation.
Chairwoman Debbie Stabenow (D-Mich.)
In her opening statement, Stabenow described issues including Russia sanctions evasion using crypto markets, the need for regulatory oversight of digital assets, diversity in the Commodity Futures Trading Commission (CFTC), financial system accessibility, the need for more resources for the CFTC, addressing climate risk, and the role of the derivatives markets in transitioning to a carbon-neutral economy.
Ranking Member John Boozman (R-Ark.)
In his opening statement, Boozman focused on the proper role of regulators in the digital asset space and the need for a full slate of CFTC Commissioners.
Christy Goldsmith Romero, of Virginia
In her testimony, Romero said her highest priority would be to work to ensure that the markets are working well – that they are open, fair, and competitive – and prioritize identifying and mitigating risks that could threaten market integrity and resilience, adding that cybersecurity will continue to require risk mitigation. She also said that as our markets evolve with emerging issues like digital assets and climate, regulators must be thoughtful and deliberate and that being thoughtful helps keep markets resilient, transparent, and free of fraud and manipulation, while at the same time promoting responsible innovation.
Kristin N. Johnson, of Michigan
In her testimony, Johnson said the futures and derivatives markets are preeminent in global financial markets and that these markets play an essential role in the domestic economy and impact the daily lives of Americans, influencing the cost of energy sources used to heat our homes, cultivate crops, and manufacture, produce, and distribute goods along the supply chain. She also stated that the CFTC is a champion of the public interest, and its robust enforcement program monitors markets to protect against fraud and manipulation, adding that the CFTC’s role in protecting the integrity of markets is even more critical. She then said these concerns include a potential increase in the severity, frequency, and sophistication of cyberthreats; a lack of customer protections; low visibility into pricing and infrastructure data; and retail market participants’ ability to, in seconds, quickly and easily download smart phone apps to execute complex, leveraged digital asset transactions. If confirmed, Johnson promised to support the CFTC in its mission to ensure orderly trading and liquidity, as well as customer protection, fairness, and transparency in futures and derivatives markets.
Summer Kristine Mersinger, of South Dakota
In her testimony, Mersinger said she believes the CFTC is starting a journey into a new frontier, which will be fertile ground for new innovation that will benefit the U.S. financial system and economy as a whole, adding that reaping those benefits also will require managing risks and hazards as the Commission plows new ground.
Caroline D. Pham, of New York
In her testimony, Pham said we are in a unique time in history where the world faces immense challenges, and the CFTC can build or reshape global financial market structures. She claimed to know firsthand how important it is to take a pragmatic approach to oversight of the global commodity derivatives markets to ensure the protection of the livelihoods of so many Americans that depend on them for risk management and price discovery.
Question & Answer
Stabenow engaged with the nominees in a colloquy about the mutually agreed upon need for the CFTC to regulate the digital asset spot market.
Stabenow asked about the need for the CFTC to address climate risk. Romero and Johnson said the CFTC’s role is to understand the threat and amount of risk and that derivatives markets provide an opportunity to hedge against that risk. Mersinger said climate risk is one of many that businesses need to prepare for and that the CFTC’s markets serve as a tool to manage these risks. Pham said the issue needs to be thoughtfully studied.
Stabenow asked how the CFTC can monitor cyber threats. Johnson said the CFTC will continue to integrate 21st century technology and engage in continuous communication with registrants and others, and that she would support the Chair’s efforts to enhance the CFTC’s preparedness.
Boozman asked if the nominees would commit to working with market participants to address regulatory concerns rather than jumping straight to fines and penalties. The nominees agreed, with Johnson adding the need for robust enforcement and Pham stating the importance of regulatory clarity and guidance.
Boozman asked if it makes sense for the CFTC to provide a list of digital assets it considers to be commodities. Pham said the CFTC’s certification is well-suited for new products, and Mersinger said the Commission needs to look at the markets and figure out how to balance the opportunities with the risks. Johnson emphasized the need to engage with market participants, and Romero expressed concern about providing a list and not being able to keep it updated. Sen. Sherrod Brown (D-Ohio) asked about the CFTC’s role in protecting consumers from digital asset risk. Johnson said regulators need to collaborate and ensure vibrancy but be mindful of vulnerable participants. Romero said the CFTC and Securities and Exchange Commission (SEC) should collaborate and that Congress should also address consumer protections. Sen. Tommy Tuberville (R-Ala.) asked if the CFTC is well-suited to address market failures in the digital asset arena, to which all of the nominees answered in the affirmative. Sen. John Thune (R-S.D.) asked about crypto firms participating in agriculture markets. Romero said the CFTC has a principles-based framework, and the bar should not be lowered. Johnson emphasized the need for a level playing field, and Mersinger and Pham stated the need for clarity and standard rules. Sen. John Hoeven (R-N.D.) asked how the CFTC should regulate cryptocurrency and educate consumers. Romero said consumers may not understand the lack of consumer protections, the CFTC, with its limited ability, should help keep the market as safe as possible, and Congress can help.
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