Sen. Durbin Questions CFTC’s Crypto Regulatory Capacity Post-FIT21

During a Senate Appropriations subcommittee hearing held on June 13, Senator Dick Durbin, D-Ill., questioned CFTC Chair Rostin Behnam and SEC Chair Gary Gensler on the CFTC’s ability to regulate the crypto sector effectively. The hearing also addressed broader concerns about the adequacy of current regulatory frameworks and the potential impact on the crypto industry’s growth and compliance.

Senator Durbin’s Concerns About CFTC’s Ability For Efficiency

Following the passage of a bill in the US House that would grant the CFTC more power and funding to oversee cryptocurrency markets, Senator Durbin raised concerns about the agency’s ability to handle the increased responsibility.During the Senate Appropriations subcommittee hearing today, where CFTC Chair Rostin Behnam and SEC Chair Gary Gensler were present to discuss their agencies’ budget requests, Durbin expressed skepticism about the CFTC’s readiness to regulate the rapidly evolving crypto sector.Durbin questioned Behnam directly, asking,

“What in the world makes you think you can get into this fast-moving, capacious world and be effective as a regulator?”

Behnam acknowledged that while the CFTC has successfully enforced actions against crypto entities, expanding its regulatory scope would necessitate additional resources. Behnam stated,

“We are adequately equipped to oversee the markets we are mandated to oversee, but if we were to be given authority over crypto markets, I would certainly expect there to be an increase in a budget.”

Durbin also sought Gensler’s perspective, given his previous role as CFTC Chair. Gensler highlighted the differences between the CFTC’s current regulatory framework and what would be required to oversee crypto markets effectively.“I think it depends on what they’re given,” Gensler said. He pointed out that the CFTC traditionally oversees derivatives markets, which do not require the same level of disclosure as securities markets.

The FIT21 Could Weaken CFTC Enforcement Capabilities

The US House of Representatives recently passed the Financial Innovation and Technology for the 21st Century Act (FIT21). This bill assigns new jurisdiction to the CFTC over “digital commodities,” while the SEC would continue to oversee “digital assets offered as part of an investment contract.” The bill, which received bipartisan support from former Speaker of the House Nancy Pelosi, aims to clarify regulatory responsibilities between the two agencies.House Financial Services Committee Ranking Democrat Maxine Waters has argued that FIT21 could overstretch the CFTC’s resources, weakening its enforcement capabilities. As noted in the fiscal year 2024 budget document, the SEC has a significantly larger staff, with 4,500 employees, compared to the CFTC’s approximately 700 employees. During the hearing, Sen. Bill Hagerty, R-Tenn., criticized the SEC’s regulatory approach to cryptocurrencies, suggesting that the lack of clear rules drives the industry offshore.He specifically mentioned the collapse of the crypto exchange FTX, claiming it chose to avoid the US market due to regulatory uncertainty.

“I just think that the important thing here is that FTX chose to avoid the US market because we don’t have certainty here. We don’t have regulatory clarity here that will allow these exchanges to come and operate clearly.”

Gensler countered this argument by stating that crypto exchanges attempt to evade compliance with US laws designed to protect capital markets.