Sen. Durbin questions CFTC's ability to regulate crypto following FIT21 passage

Following the passage of a bill in the U.S. House that would grant more power and funding to the Commodity Futures Trading Commission to oversee crypto, one senator questioned whether the agency was truly up for that challenge.

Some worry the CFTC is "biting off a hell of a lot more than they can chew," said Sen. Dick Durbin, D-Ill.

"What in the world makes you think that you can get into this fast-moving, capacious world and be effective as a regulator?" Durbin asked CFTC Chair Rostin Behnam on Thursday during a Senate Appropriations subcommittee hearing, where both Behnam and SEC Chair Gary Gensler were testifying to discuss budget requests for their agencies.

There is a gap in regulation over "non-security commodity tokens," Behnam said. The CFTC has done well in bringing enforcement actions against crypto entities, he added.

"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," Behnam said.

Durbin also asked Gensler, previously the chair of the CFTC, if the commodities regulator could take on overseeing crypto.

"I think it depends on what they're given," Gensler said. The CFTC does not have a "disclosure based-regime" and investors don't have those disclosures for products such as corn, wheat or oil, he added.

"It's a great agency, but it was set up to do derivatives," Gensler said.

State of play

The U.S. House of Representatives last month passed a crypto market structure bill called the Financial Innovation and Technology for the 21st Century Act, also known as FIT21. The Republican-led bill garnered 71 Democratic votes, including from former Speaker of the House Rep. Nancy Pelosi of California. It gives new jurisdiction to the CFTC over "digital commodities" and asserts the SEC would oversee "digital assets offered as part of an investment contract."

House Financial Services Committee Ranking Democrat Maxine Waters has argued FIT21 would stretch the CFTC's resources, weakening the agency's enforcement of the industry, The SEC has 4,500 staff members, according to its website, while the CFTC has only around 700 employees, according to a fiscal year 2024 budget document.

There is not a companion bill for FIT21 in the Senate, and top lawmakers in the Democrat-controlled Senate have not previously shown much interest in the bill. Meanwhile, Senate Agriculture Chair Debbie Stabenow, D-Mich., has been in talks with Senate Majority Leader Chuck Schumer over the past few weeks about her bill to divvy up oversight of crypto between the SEC and CFTC, according to Politico .

Crypto exchanges

Sen. Bill Hagerty, R-Tenn., criticized the SEC's approach to writing rules for crypto on Thursday and said the industry is having to move offshore as a result.

Later during the hearing, Hagerty pointed to now collapsed crypto exchange FTX and said the platform "chose to avoid the U.S. market" due to the lack of rule clarity. Crypto exchanges have a difficult time registering in the U.S., Hagerty said, which Gensler quickly rebutted.

"With all respect, that's because they are choosing to try to not comply with U.S. law that so well protects our capital markets," Gensler said.