The U.S. Commodity Futures Trading Commission (CFTC) has revoked an important previous directive that had signaled stricter oversight of digital asset derivative products.
This decision indicates a more crypto-friendly legal environment in the U.S., thanks to the pro-cryptocurrency stance of the Trump administration.
CFTC Loosens Oversight of Cryptocurrency Derivatives
CFTC has withdrawn Circular Guidance No. 23-07 and No. 18-14 from the Division of Clearing and Risk (DCR).
The previous circular, issued in May 2023, focused on digital asset payment risks. Meanwhile, the latter circular targeted the listing of virtual currency derivative products.
When issued, both directives implied selective screening of cryptocurrency products for stricter oversight.
However, both are now considered unnecessary, taking effect immediately, in a context where the commodity regulator promotes regulatory consistency.
This decision shows a shift towards treating digital asset derivative products like Ethereum (ETH) as traditional financial (TradFi) products.
"As stated in today's withdrawal letter, DCR decides to withdraw the circular to ensure it does not suggest that the regulatory handling of digital asset derivative products will differ from handling other products," CFTC explained.
This move will eliminate the distinction between digital asset derivative products and TradFi instruments.
It also paves the way for enhanced market participation, facilitating broader involvement from financial institutions in the digital asset derivative market. This could lead to increased liquidation and market maturity.
However, the circular warned derivative clearing organizations (DCOs) to prepare for risk assessments specific to the unique characteristics of digital products.
Therefore, while it reflects CFTC's commitment to innovation, it also shows an intention to maintain robust financial oversight.
This decision came just weeks after the Office of the Comptroller of the Currency (OCC) allowed U.S. banks to provide cryptocurrency and stablecoin services without prior approval.
However, OCC clarified that despite removing the approval requirement, banks must maintain robust risk management controls similar to those required for traditional banking activities.
"OCC expects banks to have robust risk management controls similar to those supporting new banking activities as they do with traditional activities," said Rodney E. Hood, Acting Comptroller of the Currency.
Thus, CFTC's move to eliminate regulatory bias against cryptocurrency derivative products marks a significant policy shift in the U.S. On one hand, CFTC seeks to remove the distinction between cryptocurrency derivative products and TradFi instruments.
On the other hand, FDIC and OCC want banks to maintain risk management controls similar to those required for traditional banking activities, despite providing cryptocurrency and stablecoin services.
However, these efforts reflect the increasing trend of U.S. financial regulators to reduce barriers and promote responsible innovation in the cryptocurrency industry.
