Key facts
- Former SEC and CFTC officials have urged regulators to adopt a lighter regulatory touch for crypto derivatives.
- They argue that similar risks should receive similar regulatory treatment to avoid driving trading offshore.
- The SEC is working on clarifying custody rules for investment advisers handling digital assets.
- The CFTC is looking to bring perpetual futures trading onshore.
- A comment letter, sponsored by Kalshi, warned that current regulations are pushing lucrative crypto markets overseas.
Former officials from the U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are advocating for a more balanced regulatory approach to digital assets, particularly concerning derivatives. In a comment letter sponsored by the prediction market platform Kalshi, a bipartisan group of former regulators, including ex-CFTC Chairman Chris Giancarlo and ex-SEC Commissioner Steven Wallman, argued that similar risks in the crypto market should be treated with similar regulatory standards. They warned that current regulations, if not carefully calibrated, could continue to push significant trading volumes offshore, as evidenced by the substantial estimated value of offshore perpetual futures markets.
The SEC and CFTC are currently engaged in separate but related efforts to define rules for the burgeoning crypto industry. The agencies have sought public input on how to classify and regulate various derivatives, including swaps and perpetual futures, and to clarify jurisdictional boundaries between them. The former officials contend that overlapping and overly burdensome rules increase compliance costs and deter legitimate market activity from returning to the U.S.
Concurrently, the SEC is advancing its efforts to provide clarity on crypto custody for regulated investment advisers. A revised proposal has been sent to the White House Office of Information and Regulatory Affairs (OIRA) for review, aiming to establish clear guidelines for how investment firms can safeguard digital assets while adhering to federal securities laws. This follows the agency's previous withdrawal of a more expansive custody rule proposal from three years ago. The SEC's broader 'Reg Crypto' proposal is also currently open for public comment.