Fischer Presses CFTC Chairman On Digital Currencies: Are You ‘Equipped To Fill Any Gaps’ In Policy?

last month

Before the Congressional recess, Sen. Deb Fischer (R-NE) questioned the CFTC Chairman on digital currency oversight and regulation durign a Senate Agriculture Committee hearing.

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00:00on here in the committee, but it is certainly a huge issue. Thank you very, very much.

00:06Senator Fischer.

00:07Thank you, Madam Chairman, and thank you, Mr. Bennett, for being here today.

00:13As we discussed last time that you were before the committee, Nebraska has played a leading

00:18role in the regulation of digital assets at the state level. In 2021, Nebraska passed

00:25permitting the creation of banks or creation of divisions within existing banks for the

00:31purpose of trading in cryptocurrencies. Additionally, Nebraska's Department of Banking and Finance

00:38has used state laws and authorities from the Federal Commodities Exchange Act to provide

00:44robust oversight while at the same time fostering fair digital asset markets.

00:51State regulators are the closest to the people, and they serve a key role in preventing fraud

00:56and abuse in digital asset markets. Do you have any concerns about federal legislation

01:02preempting strong and effective state laws regarding digital assets, and is the CFTC

01:10equipped to fill any gaps that might exist there?

01:14Thanks, Senator Fischer. I appreciate the question and certainly remember very clearly

01:19that back and forth we had a few years ago. As I mentioned back then, and I'll repeat

01:24it because it is important, our state partners are some of our most important partners and

01:29ones that we take that relationship very seriously because, as you mentioned, they are the boots

01:34on the ground for retail investors, for investors across the country, including Nebraska, and

01:39making sure that we're getting to every component of a local community to make sure folks are

01:44not being defrauded. Ultimately, and answering your question more directly, I think with

01:49markets, and this has been something we've learned over decades in the U.S. and globally,

01:54having a national market system is a more efficient and effective means to bringing

02:00liquidity and trading to a single point as opposed to having a scattershot or a state-by-state

02:06national market system. That said, putting the market element aside, I do think states

02:13should preserve rights around fraud, custody, which goes to an extent the point I was making

02:18with Senator Lujan about states preserving their rights for money transmission across

02:23state borders and inside state borders as well, and then ultimately, and I will just

02:29point out again, the extreme importance of a state attorney's general being able to preserve

02:33fraud authority and not be preempted. I think there's a balance between creating some federal

02:40system, because there is efficiencies in having a single market place, but also ensuring

02:45that we're preserving certain elements of states' rights, whether it's in the fraud

02:49space, custody and payment space, so that the state will preserve the opportunities

02:53to protect its investors.

02:55Since we've discussed this a few years ago, my office has reached out to Nebraska. We

03:00are certainly very aware of the success they've had and the leadership that they've played,

03:04so we'll continue to do that.

03:05I was just going to ask, if you've reached out, I know you've been in contact with Nebraska

03:11with the department there. Have you reached out to other states? Do you see action increasing

03:18at the state level with state laws being implemented and put in force? Because I think any time

03:25you talk preemption, it's because probably the federal government's moved too slowly,

03:31and so states, as they should, step up. They're the laboratories that we have in our system,

03:40but it makes it then more difficult, I think, especially when you have states that have

03:45stricter laws in place than other states, to try and thread that needle at the federal

03:51level.

03:52We have not necessarily spoken to every state in the union, but we've spoken to many. We

03:57are a part of multiple multilateral organizations, which include national-level state securities

04:04regulators. We work closely with state security regulators on enforcement. To your question,

04:10yes, I think states, many of them have been frustrated. There are two components to it.

04:14There's the enforcement and customer protection side, which I think is really driving Nebraskans'

04:19efforts, because there is a lot of fraud out there, and there's a lot of opportunity to

04:23take advantage of vulnerable individuals in many different ways. I think those individuals

04:28at the state level feel like they need to step up if the federal government's not moving

04:32in that direction.

04:33The other element, and I think to the extent Senator Gillibrand certainly knows this, but

04:38different states that may have more robust and well-built out financial systems, like

04:42New York, you're seeing those regulators build out compliance programs and regulatory programs.

04:48You point out in your testimony the need for appropriate funding to meet the mandate of

04:52new regulatory authorities for the CFTC, and you recommend a permanent fee-for-service

04:59model. As an appropriator, I'm curious what this funding level would be. Would it just

05:06be administrative funding? Would it be hiring additional staff? Would it be IT? What is

05:12your thinking on that?

05:14All of the above, and as I mentioned to the chair, and I do want to correct the record,

05:18I mentioned $50 million in the first year and $30 million in the second. It's actually

05:21the opposite, $30 and $50 in the first and second year, respectively. We've done a fair

05:25amount of work in this area because there's been multiple efforts to legislate around

05:29the space. We've done analysis with different assumptions about how many individuals or

05:34entities would register with us. We're happy to share it with your office, but ultimately

05:39the funding would come from users, so it would be a fee-for-service model, and it would be

05:45for personnel, but also hardware itself, so data hardware, cyber hardware, any type

05:52of hardware we would need for surveillance and typical regulatory tools, so a mix of

05:56both. Again, a lot of assumptions. We would see how many would come in and register with

06:00us over time, but we would certainly look to appropriators to help set a level based

06:07on a request we made and then offset that request by assessing the fees to the market

06:12participants.

06:13Okay. Thank you.

06:15Thank you, Madam Chair.

06:17Thank you very much. Senator, let me look here on my, I think Senator Booker just came

06:26in the room. Just to talk about just in time.

Fischer Presses CFTC Chairman On Digital Currencies: Are You ‘Equipped To Fill Any Gaps’ In Policy?

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