CFTC’s Commissioner Explains Jurisdictional Oversight of CFTC & SEC over Crypto

Commissioner of the Commodity Futures Trading Commission (CFTC) in the US addresses the most debated topic in the US i.e. the legal status of crypto and as to who amongst CFTC and Securities & Exchange Commission of the US (SEC) has the absolute jurisdiction over crypto regulation and oversight. The Commissioner in detail explains the scenarios when CFTC’s oversight over crypto is exercised by CFTC and in what circumstances it is exercised by SEC.

Crypto regulation has become one of the most hyped and debated topics in the US. However, what is more sensitive issue with regard to crypto is its very “structure” i.e. legal status.

There are two prominent government functionaries in the US. One is Commodity Futures Trading Commission (CFTC) and the other is Securities & Exchange Commission (SEC). Both are sovereign authorities and work independently in accordance with their pre-defined roles. CFTC is tasked to supervise derivative markets working in the US and includes supervision over options markets, agriculture futures and swaps. The main objective of CFTC is to eliminate and prevent fraudulent and malpractices within the derivatives markets. CFTC is headed by a Chairman and assisted by five Commissioners.

On the other hand, SEC is an entity that looks at the affairs of securities markets in the US where trading of securities takes place. Like CFTC, SEC too is headed by a Chairman and has four Commissioners to assist the Chairman.

The usage, trade and business of cryptocurrencies in the US is still unregulated. Nor is there any comprehensive crypto-specific law nor is there any crypto-specific oversight authority in the US. However, both these entities i.e. CFTC and SEC claim regulatory powers over “cryptocurrencies”. People are confused because they have witnessed both authorities to exercise their powers over crypto.

However, recently, an explanation over crypto has been issued by a Commissioner of CFTC namely Dawn D Stump last week. She explained how both authorities are individually regulating virtual assets present in the country. She commented that there is a huge misconception in the US that virtual assets are treated as “securities” by SEC and as “commodities” by CFTC. She, first of all, clarified that primarily commodities are not regulated by CFTC irrespective of them being securities or not. Instead, CFTC’s regulation is over derivatives and the same rule applies to traditional assets, including virtual assets.

She added further that CFTC lacks regulatory oversight upon commodities that are cash based. However, if commodities involve future contracts, then such commodities would attract CFTC’s regulation. This means that if there are future contracts involving Bitcoin then CFTC is going to be the exclusive regulating authority.

However, any such virtual assets, which fall within the category of “securities”, come directly under the supervision of SEC. But if contracts involve securities, then regulation control can either be exercised individual by SEC or CFTC or jointly by both.