When it comes to cryptocurrencies, securities regulators may get a lot of headlines, but don’t count out the commodities cops.
With crypto fan Donald Trump now in the White House, the U.S. Securities and Exchange Commission dismissed cases brought under the last administration against platforms such as Coinbase Global.
While the SEC remains crypto curious with a task force considering how to handle those markets, the U.S. Commodity Futures Trading Commission still oversees Bitcoin and Ethereum, along with dollar-pegged stablecoins like Tether.
The CFTC isn’t likely to let go of its crypto authority when its nominee to head the agency, Brian Quintenz, is sworn in. A tech-oriented former agency commissioner, Quintenz has been working at the crypto arm of venture firm Andreessen Horowitz.
“His own background suggests that he will be just as keen and energetic about having the CFTC play an increasingly significant role in the regulation of digital assets—or nonregulation,” says Stacie Hartman, a lawyer at Morgan Lewis who represents firms in CFTC cases.
Before Quintenz takes his seat, CFTC commissioners aren’t taking many Trump-inspired votes—the commission is split evenly between Republicans and Democrats. But acting chair Caroline Pham moved quickly to make the agency appear less adversarial.
In March, the CFTC withdrew an alert it had issued in Trump’s first term that warned crypto’s significant risks merited the agency’s scrutiny of Bitcoin trading. Crypto products will now be treated like just another derivative.
A couple of recent advisories encouraged commodities firms to self-report their violations to the agency. The CFTC eased some penalties and posted a discount list it will apply to fines if a firm reports its misdeeds, remedies them, and cooperates with agency investigators.
Those are improvements over the CFTC’s past inscrutability, says Rob Schwartz, who joined Morgan Lewis this year after serving as the CFTC’s general counsel.
“You really didn’t have anything that you could look at and say, “Here is the policy, here is the discount you can expect versus what they’ve done in the past,” Schwartz says, “which is a good guardrail.”
His colleague Hartman has one reservation, noting that fines sought by the agency have climbed steeply in recent years.
Federal statutes set the penalty for commodity manipulation at about $1 million. But in the last decade, Wall Street banks paid as much as $800 million to settle CFTC allegations they manipulated markets in foreign exchange or interest rates. Under the Biden administration, the CFTC collected over $1 billion in civil penalties from firms whose traders used WhatsApp and personal messaging for work communications.
Until future enforcement cases show the new administration’s underlying “price list” on civil fines, the industry won’t know the potential discount for cooperation.
“Over time, there has been a stratospheric soaring away from the statutory basis for setting a civil monetary penalty,” says Hartman. “We need a little time to tell how the [discount] matrix actually gets applied.”
Write to Bill Alpert at william.alpert@barrons.com