CFTC warns against clearing derivatives linked to digital assets

The staff of the U.S. Commodity Futures Trading Commission (CFTC) is warning companies to be cautious and actively counter risks associated with clearing digital asset transactions.

The CFTC’s Division of Clearing and Risk issued an advisory on Tuesday, stating that it would focus specifically on emerging risks in the cryptocurrency space, in response to an increase in the number of supervised entities clearing these types of trades. These risks include potential conflicts of interest, protection against cyber threats, and how companies manage the physical delivery of digital assets in transactions that require delivery.

The agency expects companies “to actively identify new, evolving, or unique risks, and implement risk mitigation measures tailored to the risks.”

The derivatives regulator directly oversees crypto futures and has the power to enforce against fraud and manipulation of spot markets for non-security crypto assets. The agency is expected to play a larger role as an industry watchdog in the future, but bills that would enhance its authority have not yet been passed by Congress.

When a regulator issues a public warning about certain activities, it is often followed by sanctions in that area. Meanwhile, the CFTC has already taken major enforcement actions against crypto companies, including a recent action against Binance’s global operations.

Some crypto firms, including the former FTX.US subsidiary LedgerX, have become part of the derivatives clearing organizations overseen by the agency.

Read more: DeFi to Go Under Microscope at US CFTC Advisory Group’s Opening Session

Edited by Nikhilesh De.