CFTC Mulls Rules Change to Accommodate Crypto and AI Risk

The Commodity Futures Trading Commission (CFTC) has issued a new proposal to revise its rules pertaining to risk management, accounting for risks related to "evolving technologies" like cryptocurrencies and artificial intelligence.

"In light of the emergence of distributed ledger networks, certain markets have begun to adopt or explore their applications," Romero said in a statement Thursday. "Cloud data storage and computing have become widely adopted, and the potential of artificial intelligence to revolutionize businesses is increasingly recognized."

The Commissioner stressed that "alongside these advancements come inherent risks that need to be addressed and managed effectively."

Romero specifically highlighted risks associated with digital asset markets, citing, among others, the recent collapses of Silvergate and Signature banks—the two crypto-friendly financial institutions that had served many prominent crypto firms before shuttering earlier this year.

According to her, risks can also arise from regulated trading in crypto derivatives, while "unregulated spot markets carry additional risks, as seen with the collapse of FTX, Terra Luna, Celsius, and numerous others that have resulted in substantial losses."

"This is in addition to operational risks and risks associated with rampant fraud and illicit finance in some parts of the crypto markets," said Romero.

Another area emphasized by the CFTC is crypto custody

"Brokers may consider holding customer property in the form of stablecoins or other digital assets that could result in unknown and unique risks," said Romero. "These brokers may face third-party custody and other risks that should be identified and managed."

The CFTC has initiated an advance notice of proposed rulemaking and will be accepting public comments for a period of 60 days. Following this preliminary stage, a formally proposed rule set will be developed. The final version of the rule will undergo a voting process for its approval.

The regulatory agency has been busy of late monitoring the crypto industry as well as taking aim at some of its larger entities.

Earlier this week, the CFTC warned all registered firms and applicants that it will be keeping a close eye on all new products and services related to crypto.

In March, the agency filed a lawsuit against Binance, accusing the world’s largest crypto exchange of multiple trading derivatives violations.

These include Binance failing to properly register to offer derivatives products to U.S. clients, not adequately supervising activity on its exchange, insufficient anti-money laundering (AML) and know-your-customer (KYC) controls, and knowingly evading or helping U.S. clients evade regulators.