Back to General Resources

Senate Ag Committee Digital Asset Hearing

Senate Agriculture, Nutrition, and Forestry Committee

Examining Digital Assets: Risks, Regulation, and Innovation

Wednesday, February 9, 2022

Topline

  • Behnam and many of the panelists advocated for regulatory authority and resources for the CFTC to oversee digital asset markets. Many also advocated for a single regulator to avoid a fragmented regulatory framework.

Opening Statements
Chairwoman Debbie Stabenow (D-Mich.)

In her opening statement, Stabenow said that digital assets, while useful, are a risky form of payment that is constantly unstable and mandates significant energy consumption. She added that regulation and innovation are not mutually exclusive.

Ranking Member John Boozman (R-Ark.)

In his opening statement, Boozman emphasized the need to assess whether expanding the Commodity Futures Trading Commission (CFTC) regulatory footprint to digital asset commodity markets is possible and the need to include exchanges, consumer protection advocates, and other market participants in the conversation.

Panel 1

Witnesses

  • Rostin Behnam, Chairman, Commodity Futures Trading Commission, Washington, DC

Testimony
Rostin Behnam, Chairman, Commodity Futures Trading Commission, Washington, DC

In his testimony, Behnam said the Commission does not have direct statutory authority to regulate cash markets and that the digital asset market, which at present is most directly supervised through state money transmitter licenses, is unique and presents many novel issues for the CFTC, given its limited authority to police those markets. He added there is no one regulator, either state or federal, with sufficient visibility into digital asset commodity trading activity to fully police conflicts of interest and deceptive trading practices impacting retail customers. He also said the CFTC’s regulatory principles, that have made the U.S. derivatives markets the strongest in the world, can also serve to aggressively address many of the risks of digital assets.

Question and Answer

CFTC Regulatory Authority

Sens. Roger Marshall (R-Kan.), John Hoeven (R-N.D.), Cory Booker (D-N.J.), Stabenow, and Boozman asked about the CFTC’s authority to regulate and monitor the digital asset market and recommendations for Congress. Behnam said the CFTC’s authority to monitor the relatively unregulated digital asset market is limited and that additional appropriations would likely be necessary to conduct oversight. He also emphasized the need for as little regulatory fragmentation as possible and oversight by a single regulator. Behnam then recommended authorization and a regulatory structure for the CFTC over cash digital assets, adding that the CFTC is a market regulator that knows the market structure that would be important in this area and that the Commission has been uniquely exposed to digital assets over the past 8-9 years.

Sen. Amy Klobuchar (D-Minn.) asked about the existing gaps between the CFTC and the SEC in regulation and what Benham’s recommendations are to bridge this gap. Behnam said the biggest gap is identifying commodities versus securities and that, as a derivatives market regulator, the CFTC would need more authority to regulate cash markets.

Consumer Protection

Stabenow and Boozman asked what consumer protections Congress should consider. Behnam said Congress can bring a regulatory structure to the market and that visibility and information flow are both vital. He added that while the Commission has many partnerships to ensure it is using all the necessary tools, there are many cyber-attacks on crypto, so the Commission would have to look at its relationship with a third party.

Climate Change

Sen. Tommy Tuberville (R-Ala.) asked what Benham thought about regulators urging banks to cut off services to legitimate crypto businesses. Behnam sympathized with Tuberville’s criticism of this action but also with the need to address the climate crisis. Sen. Kirsten Gillibrand (D-N.Y.) asked how we can make sure the correct incentives and regulations are in place to ensure the growth of this technology without sacrificing the important work being done on climate change. Behnam said disclosures would be a big help.

Cyber-Crime

Tuberville asked how Russia, China, or Iran could use crypto related cyber-crime to harm citizens and what the Commission is doing about it. Behnam highlighted the need for transparency. Gillibrand asked about the Commission’s current ability to regulate the marketplace and prevent cyber-attacks. Behnam said the Commission simply does not have enough authority to do this. Gillibrand then asked if the CFTC has the ability to manage and guard proprietary information in this sector, and Behnam said no.

Panel 2

Witnesses

  • Sandra Ro, Chief Executive Officer, Global Blockchain Business Council – USA Washington, DC
  • Samuel Bankman-Fried, Founder and Chief Executive Officer, FTX, Nassau, Bahamas
  • Perianne Boring, Founder and Chief Executive Officer, Chamber of Digital Commerce, Washington, DC
  • Kevin Werbach, Professor, The Wharton School, University of Pennsylvania, Philadelphia, PA

Testimony
Ms. Sandra Ro, Chief Executive Officer, Global Blockchain Business Council – USA Washington, DC

In her testimony, Ro shared three blockchain use cases that she said are moving our society in a more secure, transparent, and equitable direction. She also discussed a bitcoin white paper outlining a peer-to-peer electronic cash system using a consensus mechanism known as proof-of-work. She concluded that it is possible to find a balance in which the government works with stakeholders to simultaneously mitigate risks, implement prudent regulation, and nurture the rapid growth of a multi-trillion-dollar industry.

Mr. Samuel Bankman-Fried, Founder and Chief Executive Officer, FTX, Nassau, Bahamas

In his testimony, Bankman-Fried stated that the digital asset industry has equitable access, which is unique to this industry, and that most consumers in traditional market structures do not have the same access to liquidity that most sophisticated investors do. He also stated FTX’s belief that the CFTC and the Senate Agriculture Committee could play an even more prominent role in the digital-asset ecosystem and bring greater investor protections by closing some the regulatory gaps.

Ms. Perianne Boring, Founder and Chief Executive Officer, Chamber of Digital Commerce, Washington, DC

In her testimony, Boring said digital asset technology will lead to a more sound and inclusive monetary system, play a key role in the financial services industry, and will soon be considered critical infrastructure. She added that we must begin putting in place policies that provide clarity and spur innovation and economic and block-chain growth. She also encouraged adopting the Chamber’s 2019 national action plan for blockchain and providing a central regulator. She concluded that the CFTC has a principles-based system that is effective in regulation of new asset classes because it allows the regulator to set desired outcomes and the market the flexibility to innovate.

Mr. Kevin Werbach, Professor, The Wharton School, University of Pennsylvania, Philadelphia, PA

In his testimony, Werbach said there should be more than one regulator for digital assets and that there needs to be authority where the market activity involved can be addressed. He also said that regulators can adopt mechanisms such as safe harbors, no action letters, and sandboxes to provide additional flexibility for novel services as they grow, continuing that the sooner gaps in legal authority or ill-fitting rules can be addressed, the better. He added that the Senate Agriculture Committee should ensure that the CFTC has the legal authority and resources to engage in active fact-finding, rulemaking, and enforcement in the digital asset space, in concert with other regulators at the federal and state level.

Question and Answer

Regulatory Framework and Resources

Stabenow asked how Congress should ensure that the CTFC has adequate resources to continue to oversee the market at the core of its jurisdiction while expanding their responsibilities. Bankman-Fried responded that he wants to see a more active role in licensing and regulating this space and said that an increase in resources is necessary and that contributions from the digital asset community and appropriations could build that. Boozman asked if it is necessary for Congress to provide market participants greater certainty when it comes to regulation of digital assets and what that would look like. Ro said Congress must provide CTFC with the authorization and funding they need, and Bankman-Fried emphasized the need for clarity on the regulatory framework. Boring agreed with the need for regulatory clarity and cohesion between regulators and between regulators and industry, and Werbach emphasized the need to identify gaps in current regulatory structure. Sen. John Thune (R-S.D.) asked what a risk-based approach of digital asset regulation would look like, and Werbach said it should be a risk-based process, which is easier to achieve with stronger regulation.

Sustainability

Sens. Mike Braun (R-Ind.) and Stabenow asked if mining can become more sustainable and what Congress can do to encourage this. Ro said most of crypto mining used to be primarily out of Russia & China but that most mining has shifted to the U.S. She added that we should encourage crypto mining firms in the U.S. where we can champion the move to increasing renewable usage and that the private sector is agreeing to energy caps. Boring said we have greater visibility in the mining industry in the U.S., and added that bitcoin mining is leading the transfer to renewable energy.

Anti-Money Laundering

Sen. Sherrod Brown (D-Ohio) asked how to approach bringing digital assets within a Bank Secrecy Act/Anti-Money Laundering system. Werbach said this involves finding mechanisms for entities to know their customers and communicate that information and to provide surveillance for regulators.

For more information on this hearing, please click here.

For an archive of past SIFMA hearing coverage, please click here.