In his testimony, on March 28, 2023, before the Subcommittee on Agriculture, Rural Development, Food and Drug Administration and Related Agencies Committee on Appropriations, at the U.S. House of Representatives, the Commodity Futures Trading Commission (CFTC) Chairman, Rostin Behnam said that the agency’s jurisdiction is limited to its fraud and manipulation enforcement authority as it does not have direct statutory authority for comprehensively regulating cash digital commodity markets.
On March 27, 2023, the CFTC filed a civil enforcement action against Binance Exchange (Binance) for violating the Commodity Exchange Act (CEA) and CFTC regulations and for advising, directing, and assisting Binance employees and customers to circumvent compliance controls intended to detect and prevent violations of law.
In his response, CZ described CFTC’s civil complaint as “unexpected and disappointing” but said that Binance would continue to collaborate with regulators and government agencies all around the world.
While testifying before the U.S. Senate Committee on Agriculture, Nutrition, and Forestry on the “Lessons learned from the FTX Collapse”, on December 01, 2022, Behnam said that he encouraged bills on digital assets markets that contemplate shared responsibility for CFTC and the Securities and Exchange Commission (SEC), with the SEC having oversight of all security tokens while the CFTC would apply its market-based rules for commodity tokens.
In another testimony on the “State of the CFTC” before the U.S. House of Representatives Committee on Agriculture on March 31, 2023, Behnam acknowledged that the growth and widespread adoption of digital assets had presented new and emerging risks for all regulators and that the agency will use its existing enforcement authority in the digital asset commodity space to protect customers and markets from fraud and manipulation.
Behnam stated that the CFTC will use its existing power and authority to protect all market participants while ensuring the integrity of commodity markets till a comprehensive regulatory framework over digital assets is finalised.
Behman further said that to date the CFTC had brought 70 enforcement actions involving digital assets commodities. According to CFTC’s annual enforcement results for Fiscal Year 2022, in the fiscal year 2022, more than 20% of our 82 enforcement actions involved digital assets.
In December 2022, the CFTC charged Sam Bankman-Fried (former CEO and co-founder of FTX), FTX Trading, and Alameda with fraud and material misrepresentations, and for causing the loss of over $8 billion in FTX customer deposits.
According to the civil complaint, CFTC is seeking injunctive and other equitable relief, and civil monetary penalties against Binance, for violations of the Commodity Exchange Act (CEA) and CFTC regulations.
Any outcomes from this civil action are likely to have wider ramifications across the crypto world, given that Binance operates the world’s largest centralized digital asset exchange by daily trading volume.