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U.S. CFTC commissioner warns of risks if crypto firms self-certify

FINTECH-CRYPTO-CFTC:With eyes on FTX bankruptcy, U.S. regulator seeks more due diligence authority
FINTECH-CRYPTO-CFTC:With eyes on FTX bankruptcy, U.S. regulator seeks more due diligence authority Copyright Thomson Reuters 2023
Copyright Thomson Reuters 2023
By Reuters
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By Chris Prentice and Hannah Lang

NEW YORK/WASHINGTON - A top official with the U.S. Commodity Futures Trading Commission (CFTC) on Wednesday plans to warn lawmakers against allowing cryptocurrency exchanges to self-certify with the agency to list products for trading.

The CFTC already allows self-certification for exchanges to list contracts for other products, such as commodities. Lawmakers were considering a similar process as part of proposed crypto legislation being hammered out last year.

But CFTC Commissioner Christy Goldsmith Romero said the process would open the door to "regulatory arbitrage" as some crypto assets are likely securities that need to be overseen by a different agency, the Securities and Exchange Commission (SEC).

"Oversight is necessary to prevent abuse" of the process, she said, according to remarks prepared for an event at the University of Pennsylvania.

Her warnings come as lawmakers regroup to draft legislation to better oversee the troubled crypto industry, which had a wave of bankruptcies last year and continues to reel from FTX's sudden collapse and alleged fraud.

Romero also raised questions about the level of due diligence firms conducted before investing in FTX, suggesting there could be incentives "to turn a blind eye" to red flags in a competitive market.

Federal prosecutors have brought charges against three of FTX's former top executives, accusing them defrauding investors and misappropriating customer funds.

The SEC is also probing FTX investors' due diligence, according to two sources familiar with the inquiry.

In order to regain the public’s trust following the FTX meltdown, the crypto industry should enshrine strong corporate governance and increase the roles that gatekeepers like lawyers and compliance professionals play at companies, Goldsmith Romero said.

"Gatekeepers should have seriously questioned the operational environment at FTX in the lead-up to its meltdown,” she said.

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