Mike Selig: The CFTC's New Rules for Crypto

Natalie Brunell (0:00)

Can you tell me why you think Clarity failed?

Mike Selig (0:02)

I don't understand the politics getting in the way. This is about customer protection. Sam Bankman Friedman, FTX, stole $8.7 billion in customer funds, and our rules would have protected that.

Natalie Brunell (0:12)

So what is possible with your authority right now that you don't need Congress for?

Mike Selig (0:16)

The president said market structure one way or the other, with or without legislation, and so we're going to use our authorities to deliver for the president.

Natalie Brunell (0:22)

Do you think that the meme coins that the president's family released hurt the whole cause of the industry? Well, a lot of my listeners are very worried about big government coming in.

Mike Selig (0:32)

We absolutely believe in the right to self custody your assets and protect your own privacy in on chain transactions.

Natalie Brunell (0:40)

Do you worry that if the political tides change, that all of what you're doing now can be undone by the next administration?

Hey, everyone. Welcome back to the show. Well, Congress failed to get the Clarity Act to the president's desk, so the regulators are acting on their own. Here with me is CFTC Chairman Mike Selig. Thank you so much for joining me. Hot off the presses, you are releasing rules of the road because Congress didn't act, so tell us all about it.

Mike Selig (1:11)

Well, I am disappointed that Congress failed to get the Clarity Act to the president's desk. The rule would have put in place provisions that protect the American people from fraud, abuse and the like, and they would also be drawing a clear line between securities and non-securities. But Congress gave us a lot of authority in our existing statutes, so the Securities and Exchange Commission and the Commodity Futures Trading Commission have begun to institute rule-makings to put those rules in place. We started yesterday with our reg cryptoasset transactions and reg cryptoasset markets, so these are going to set in place clear rules of the road for exchanges that want to offer trading and cryptoassets under federal protections and federal standards.

Natalie Brunell (1:51)

Before we break all of that down, can you tell me why you think Clarity failed?

Mike Selig (1:55)

Politics always get in the way. It's very hard to get legislation across the line. There's lots of different interests that go into putting something on the president's desk, and I think that unfortunately got in the way. We had concerns around ethics, we had concerns around things that were litigated already in genius, and unfortunately, the core provisions in the bill that were about market structure and exchange structure really were falling to the wayside, and we got into the politics of it. But look, we're here to deliver for the American people, the president said market structure one way or the other with or without legislation, and so we're gonna use our authorities to deliver for the president.

Natalie Brunell (2:34)

So what is possible with your authority right now that you don't need Congress for? Tell us about these new rules that you're putting out into the market.

Mike Selig (2:41)

Currently exchanges are operating under state regimes. So if you're operating a crypto exchange, you obtain a money transmitter license that's a similar license to what PayPal and check cashing providers and gift card issuers are obtaining. It's really a payments based regime. It allows you to exchange one currency for another or move money for another. These regimes really came up in the 1900s in America around remittances and payments providers making sure your money safely got from your wallet to somebody else's wallet when you use one of these service providers. Exchanges in crypto really look a lot like a securities exchange or a commodities exchange where you're trading through an order book. You want the same sorts of market manipulation protections. You don't want to be taking advantage of my firm that's cornered the market or squeezed the market. So you really do need those market based regulations. But today our exchanges don't have that. What we have is these kind of payment based regimes. And that's totally fine. Our legislative package in the Clarity Act would have fixed some of that and required all exchanges to come into a federal framework with market based regulation by the CFTC.

But what we can do with our existing statute is allow for an opt in. So it's very much like the banking model where you might go to your state banking regulator and get a charter to be able to offer certain banking services that the regulator allows you to offer or you go to a federal regulator and you can potentially offer differing services to whatever the regulator is allowed to offer you in your charter. We call those permissible activities.