U.S. Senator John Boozman (R-AR), ranking member of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, released the following opening remarks, as prepared, at the hearing entitled "Why Congress Needs to Act: Lessons Learned from the FTX Collapse."
Thank you, Madam Chair for calling today's hearing.
The sudden bankruptcy of FTX, a Bahamas-based cryptocurrency exchange that, at its peak, was the world's third-largest crypto exchange by volume has been shocking.
Public reports suggest a complete lack of risk management, conflicts of interest, and misuse of customer funds. There is simply no place for such behavior, especially in our financial markets.
A failure of this magnitude requires Congress to analyze a number of things:
The scope and scale of the impact to U.S. consumers and investors;
What could have prevented this; and
What the potential market effects or systemic risks were.
This hearing will allow the public to learn what happened from the Commodity Futures Trading Commission (CFTC), a front-line regulator; the agency's response; and the tools the agency needs to protect U.S. customers and investors in the future.
A Bitcoin, although a cryptocurrency, is a commodity. It is a commodity in the eyes of the federal courts and in the opinion of the Securities and Exchange Commission (SEC) chairman. There is no dispute about this.
If there are exchanges where commodities are traded--be it wheat, oil, or Bitcoin--then they must be regulated. It is that simple. The choice not to regulate leaves consumers at the mercy of those who would prey upon them.
The FTX failure is an unacceptable reoccurrence: a foreign entity fails, and U.S. consumers and businesses get hurt as a result. The choice not to regulate--or opting for a regulation-by-enforcement approach--drives entities offshore and out of U.S. regulators' purview. When these offshore entities fail, U.S. consumers still get hurt, but U.S. regulators can only watch from afar.
The CFTC is the right agency to regulate digital commodities: when given the necessary authorities, the CFTC has consistently demonstrated its willingness to protect consumers via enforcement actions against bad actors. It is also a pragmatic, principles-based agency that enhances consumer protection by building and implementing constructive, workable regulatory structures for markets to function in.
There is no better example of this than the CFTC's regulation of the futures market, which has proven to be one of the more resilient markets, in large part because of the CFTC's tried and trusted principles-based regulatory regime.
The CFTC regulates markets through core principles that prevent conflicts of interest, prohibits abusive trade practices, protects customer funds, and informs investors about market risks. Chairwoman Stabenow and I have drawn from these consumer protection-based principles, and the agency's expertise in regulating evolving and complex markets, and applied them to digital commodity spot markets.
I welcome today's hearing to explore how the CFTC could have used the Digital Commodities Consumer Protection Act (DCCPA) in this situation, and to flesh out what regulatory gaps we need to fill to prevent such occurrences from happening again.
Long before FTX's collapse, the Chairwoman and I began work drafting legislation to address the need for regulation in digital commodity spot markets. Speaking for myself, I can tell you that between my staff and I, we have had a transparent process taking at least 240 meetings this year with a wide variety of stakeholders that informed the legislation that was introduced in August and continues to inform my thinking as Chairwoman Stabenow and I refine the DCCPA.
A lot of hard work has gone into the Digital Commodities Consumer Protection Act. It is the result of bipartisan coordination, and wide-spread stakeholder engagement encompassing nearly the entire digital asset and financial services ecosystem. It also incorporates consumer advocacy and academic input, and regulatory technical assistance. The bill is a good-faith effort to establish a constructive regulatory framework that provides the CFTC with the resources and authority necessary to protect consumers and retail investors while promoting industry innovation in digital commodity spot or cash markets.
I am confident the CFTC is the right agency for an expanded regulatory role in the digital commodity spot market, and I remain committed to advancing a final version of the bill that will allow for the creation of safeguards the market desperately needed prior to the collapse of FTX--and certainly, even more so, in the wake of it.
I look forward to Chairman Benham weighing in on the events of the FTX collapse, giving his perspective on the state of industry, the role the CFTC is playing in protecting U.S. consumers and ensuring efficient derivatives markets. I welcome his insight on the bill.