CFTC proposes updated risk management rules to account for crypto volatility

82

2nd June 2023 – (New York) The U.S. Commodity Futures Trading Commission (CFTC) is proposing a revamp of its rules for risk management, with a focus on ensuring firms are prepared for cryptocurrency volatility and the risks associated with holding customers’ digital assets. The CFTC issued a proposal on Thursday to gather feedback on potential changes to its risk management program, and Commissioner Christy Goldsmith Romero highlighted the need to revisit regulatory oversight, including risk management requirements, due to the emergence of new technologies that carry significant risk, such as digital assets, artificial intelligence, and cloud services.

Goldsmith Romero also raised concerns over the industry’s custody practices, noting that brokers may look to hold customer property in the form of stablecoins or other digital assets, which could result in unknown and unique risks.

The proposed changes come as the use of digital assets continues to gain traction in the financial sector, with a growing number of banks and brokers integrating cryptocurrencies into their offerings. However, the volatile nature of cryptocurrencies and the risks associated with holding them have raised concerns among regulators.

The CFTC will be accepting public comments on its “advance notice of proposed rulemaking” for 60 days, marking the preliminary stage of a rule process that would have to be followed by a formal proposed rule and a vote on a final version.

The CFTC’s proposal comes as regulators around the world grapple with how to regulate the fast-moving cryptocurrency market. Some countries have taken a more restrictive approach, while others have sought to embrace the technology and create a regulatory framework that supports innovation while protecting consumers.

The proposed changes to the CFTC’s risk management rules demonstrate the need for regulators to keep pace with technological advancements and evolving risks in the financial sector. As the use of digital assets continues to grow, it is likely that we will see more regulatory developments aimed at managing the risks associated with cryptocurrencies.