CFTC Commissioner Caroline D. Pham issued a statement Friday seemingly criticizing her own agency for its latest “aggressive enforcement action” following the agency’s KuCoin charges, saying it might “infringe upon the SEC’s authority.”
While Pham commended the independent government agency’s “vigilance” in “protecting” U.S. markets through the KuCoin charges, she expressed concern that the move may overstep the CFTC’s role in crypto regulation.
CFTC Commissioner Slams Agency’s KuCoin Charges
“The CFTC’s approach may infringe upon the SEC’s authority and undermine decades of robust investor protection laws by conflating a financial instrument with a financial activity, disrupting the foundations of securities markets,” Pham said in the statement. “Owning shares is not the same thing as trading derivatives.”
CFTC charged the cryptocurrency exchange KuCoin on Tuesday, alleging that the digital asset firm engaged in a wide range of illegal activities, including dealing in off-exchange commodity futures, offering unregistered leveraged or margined transactions, and improperly soliciting orders.
Equally important, the federal agency claims that the crypto exchange did not adequately implement know-your-customer (KYC) procedures, calling them a “sham” that “did not prevent U.S. customers from trading commodity interests and derivatives on the platform.”
The Battle Between The CFTC And SEC Continues
The CFTC and the U.S. Securities and Exchange Commission (SEC) have long fought over who would lead the country’s regulatory approach in the cryptocurrency sector.
The CFTC typically regulates commodities, while the SEC traditionally controls securities.
In a similar yet separate criminal matter on Tuesday, the Department of Justice (DOJ) hit KuCoin with its own set of charges, including “violating the Bank Secrecy Act” and “operating an unlicensed money transmitter business.”
Meanwhile, KuCoin CEO Johnny Lyu pushed back against the charges in a statement posted to X, claiming they were standard for the digital asset industry.
The challenge we’re facing is not unique to KuCoin but rather typical growth and regulatory issues encountered by emerging industries. Early-stage development often sees regulatory gaps, but as the industry matures, we move towards and embrace compliance and standardization.
— Johnny_KuCoin (@lyu_johnny) March 27, 2024
While the SEC has approved Bitcoin for spot ETF trading, recent reports indicate that the federal agency is looking to label Ethereum as a security, diminishing hopes for a spot ETH ETF.
Conversely, the CFTC’s enforcement action labels Bitcoin and Ethereum as commodities.
Strife Amongst Crytpo Regulatory Bodies?
Meanwhile, SEC Chair Gary Gensler has long been under scrutiny for his stringent regulation-by-enforcement approach, failing to provide a clear regulatory framework for the digital asset industry.
The SEC has an infamous history of cracking down on perceived crypto-related securities violations and instigating legal battles with key players in the digital asset industry, including Binance, Coinbase, and Ripple Labs.
The CFTC Commissioner’s statement of disagreement may reveal deeper frustrations of federal agency employees in the difficult quest of regulating the crypto sector.