CFTC Issues New Crypto Advisory for Futures Commission Merchants


CFTC has published a new crypto advisory to futures commission merchants (FCMs) clarifying how to hold digital currencies in segregated accounts.

October 22, 2020 | AtoZ MarketsThe US Commodity Futures Trading Commission (CFTC) has released a new recommendation on the handling of customer assets on crypto assets (virtual currency) derivatives exchanges.

Purpose of CFTC’s new crypto advisory

The purpose of the new guidance is to strengthen investor protection. According to the recommendation, “Federal and state regulations that regulate cryptocurrency custodians (including exchanges) are not currently in place. Therefore, the handling of customer assets by custodians may pose risks and problems.”

Specifically, CFTC’s swap dealer monitoring department stipulates that exchanges store customer funds in an account separate from the money they hold (separate management). Customers’ virtual currency deposits must be clearly stated as “customer assets”, and the exchange is prohibited from trading using customer assets.

It also set restrictions on the services that exchanges use to store client assets, and listed “banks, trust companies, other derivative exchanges, or organizations that clear cryptocurrency futures” as designated institutions.

The CFTC is working on a comprehensive framework for digital asset derivatives, explaining that this recommendation is part of it.

Most recently, after being accused of violating the regulations of the derivative exchange BitMEX, CFTC Chairman Tarbert has reiterated his stance of pursuing law-violating companies for the purpose of protecting domestic investors.

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