CFTC commissioner calls for a household category of crypto investor

Regular households investing in the crypto markets should have different protections than the very wealthy, a member of the Commodity Futures Trading Commission (CFTC) said Wednesday.

Why it matters: Precisely how to regulate cryptocurrencies has been an ongoing discussion in Washington, with many believing a breakthrough would occur in 2022. Then one of the largest exchanges in the world, FTX, went bankrupt.

What they're saying: "For months I have been warning against growing risks in crypto assets— risks that parallel those seen in 2008," CFTC commissioner Christy Goldsmith Romero said at an industry event in Singapore.

• She made similar comments at an Axios even in June.

Context: In March, as the bull market was waning, the White House issued an executive order on studying how to regulate the industry. In September, it put out a fact sheet on the results of those findings.

• Goldsmith Romero, an alum of the Troubled Asset Relief Program (TARP) in the Obama administration, was sworn into the CFTC on March 30.
• In June, bipartisan senators proposed overall cryptocurrency regulation.
• In July, legislation on stablecoins seemed likely, but has since fallen apart.
• The last act of the year is likely to be a congressional hearing on the FTX collapse to take place Dec. 13.

What we're watching: Goldsmith Romero proposed more active regulation and monitoring of cryptocurrency exchanges under existing authority.

• "At a minimum, heightened supervision would include frequent examinations, and heightened focus on cybersecurity, conflicts of interest, and a safety and soundness financial review," she said. "Despite my multiple requests, the CFTC has not implemented heightened supervision."

She also announced her intention to seek comment on separating wealthy individuals from average people in the crypto markets, to create two tiers of retail investors.

• She noted that fewer and fewer investors are going through brokers who might otherwise warn them away from putting too much into instruments that are too risky.

• "I support suitability determinations to ensure that products and terms are safe and affordable based on a customer’s risk profile," she said.

Zoom out: With Congressional legislation on hold until the new congress convenes, Goldsmith Romero took the opportunity to suggest a place for lawmakers to start, in particular the order of priority for customers for a crypto firm in liquidation, like BlockFi is now.

• "For any legislation that Congress considers, I urge them to ban commingling of customer funds with company funds — one of the most pressing known threats— and to provide all customers bankruptcy priority," she said.

Bottomline: "Recent events did not create risks; they revealed them, and how real people can be harmed," she said.

Go deeper: FTX starts bankruptcy proceedings and Bankman-Fried resigns as CEO