CFTC Proposes New Rules to Regulate Crypto Exchanges Under Federal Oversight
The Commodity Futures Trading Commission (CFTC) has unveiled a plan to bring crypto exchanges under federal oversight, leveraging a key provision from the 2010 Dodd-Frank Act. The move comes after the collapse of the Clarity Act, which aimed to establish federal guidelines for cryptocurrency activities but failed to pass in the Senate last month. The CFTC has published an advance notice of proposed rulemaking, seeking public input before drafting formal rules. The proposal outlines two frameworks: Regulation Crypto Asset Transactions (Regulation CTX) and Regulation Crypto Asset Markets (Regulation CAM).
Under Regulation CTX, the CFTC interprets a Dodd-Frank rule broadly, suggesting that offering leverage, even through routine onboarding documents, could subject fully paid trades to federal oversight if the crypto remains on the exchange's internal books. Trades would escape this oversight only through 'actual delivery,' which the CFTC suggests could require customers to hold their private keys. On-chain trading protocols, which typically send tokens directly to users' wallets, would usually meet this standard.
Regulation CAM would introduce a 'crypto asset market' license, a tailored version of the designated contract market status held by futures exchanges. Trades would run through futures commission merchants, brokers subject to anti-money laundering rules, and leverage would be limited to those brokers or their sponsored banks. Exchanges could also register as their own broker and clearinghouse. The CFTC is considering proof-of-reserves requirements and standards against listing tokens prone to manipulation. Exchanges not offering leverage could continue operating under state money transmitter licenses.
CFTC Chairman Michael Selig stated that the rules aim to 'prevent, rather than only prosecute after the fact, fraudulent schemes such as FTX.' The notice also repudiates the agency's past approach, describing its recent cases against Kraken, Ooki DAO, and Uniswap as 'regulation by enforcement.' The framework was sent to the White House for review in September, following the failure of the Clarity Act. The CFTC has also proposed new prediction market rules.