The Commodity Futures Trading Commission (CFTC) has issued an advanced notice of proposed rulemaking (ANPRM) regarding potential amendments to the Risk Management Program (RMP) requirements in CFTC Regulations. These regulations are designed to ensure sound risk management in the derivatives markets for swap dealers and futures commission merchants. The ANPRM looks for feedback on various areas of the RMP rules, such as governance and structure, enumerated risks RMPs should monitor and manage, and the risk considerations RMPs should take into account.
CFTC Commissioner Christy Goldsmith Romero stated in a recent public statement that regulatory oversight is needed to address the risks associated with certain crypto investments. Romero cited the Silvergate Bank failure as an example of how investments in crypto can pose potential risks. The CFTC has also noted “significant risks” associated with cryptocurrencies. As the CFTC continues to ensure that the industry is subject to appropriate oversight and regulation, effective risk management in derivatives markets is important, especially considering the rapid growth of cryptocurrencies.
The ANPRM seeks to improve or modify the risk exposure report required under the RMP regulations. The CFTC intends to use the information and comments received to inform potential agency actions, such as rulemaking, regarding the RMP Regulations.
CFTC Commissioner Romero emphasized the need for improved identification capabilities in the crypto industry to combat illicit finance risks while at a financial services conference in London in April. She stated that financial privacy can be ensured using identity verification through know-your-customer (KYC), anti-money laundering (AML), and countering the financing of terrorism (CFT) measures, without relying on anonymity-enhancing technology. The integration of traditional finance systems into decentralized systems is crucial in addressing this issue.
The CFTC’s reassessment of its risk management frameworks underscores the importance of effective risk management in the derivatives markets. It remains to be seen how this reassessment will impact the crypto industry.
Featured image from iStock, chart from TradingView.com
