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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
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
Published on Updated
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By Chris Prentice and Michelle Price

NEW YORK - A top official with the U.S. Commodity Futures Trading Commission (CFTC) is pressing lawmakers to give regulators authority to dig into the books of any firm seeking to acquire significant interest in any registered market player.

In remarks published on Thursday, Democratic CFTC Commissioner Kristin Johnson said the agency needs authority to conduct "effective due diligence" on any firm that wants to purchase 10% or more of the equity interest in an exchange or clearing house registered with the agency. Without this, unregistered firms can buy their way into U.S.-regulated markets without meaningfully opening their books to regulators, she said.

Her statements, prepared for a speech given at Duke University last week, come as bankrupt crypto exchange FTX prepares to sell assets including LedgerX, a digital currency futures and options clearing house registered with the CFTC.

"Without oversight, our licensed markets are for sale," Johnson told Reuters in a phone interview.

The Commission needs Congress to give the agency authority to conduct due diligence to protect customers and maintain market stability, she said.

Lawmakers have been regrouping to draft legislation aimed at better overseeing the troubled crypto industry. Questions have mounted over due diligence in crypto following a string of bankruptcies and the announcement in December of U.S. charges against FTX's founder and former head Sam Bankman-Fried for allegedly committing fraud. He has pleaded not guilty.

Reuters has previously reported details of FTX's strategy of "acquisitions for regulatory purposes", including Ledger X, which gave the company three CFTC licenses in one swoop.

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