CFTC to update rules to address AI and cryptocurrency risks

CFTC published a proposal to revise its risk management rules to account for threats from “developing technologies” such as cryptocurrencies and artificial intelligence (AI).

The CFTC is seeking public comment on the Risk Management Program (RMP) requirements for swap dealers and futures commission merchants. Learn more: https://t.co/Vs1rb9qfey

— CFTC (@CFTC) June 1, 2023

The rules apply to swap dealers and futures commission merchants.

The agency will accept public comments over the next 60 days. It will then develop a formally proposed set of rules. The final version of the rules will go through a vote for approval.

“Some markets have begun to implement distributed ledger technology or study its applications. Cloud data storage and computing have become widespread, and AI’s potential is increasingly recognised. Alongside these advances, inherent risks arise that must be mitigated and effectively managed,” —commented Commissioner Kristin Goldsmith Romero.

The official separately highlighted risks related to digital asset markets, citing the shutdown of banks Silvergate and Signature.

Romero said that problems could also arise in regulated trading of crypto derivatives. Unregulated spot markets pose additional threats, as evidenced by FTX, Terra, Celsius and others, she added.

“This adds to the operational risks and threats related to fraud and illicit financing in certain segments of digital asset markets,” — she emphasised.

Another area of close regulatory focus is the custody of cryptocurrencies.

“Brokers may consider holding client property in the form of stablecoins or other digital assets, which could give rise to unknown and unique risks. These infrastructure players may face third-party custodial risks,” — she emphasised.

Earlier, CFTC Chairman Rostin Behnam said that decentralized exchanges will be regulated by his agency or SEC, even if platforms operate autonomously or with minimal human involvement.

Earlier the official warned crypto industry participants about the inevitability of regulation.

In March 2023, the CFTC filed suit against the Binance exchange and its CEO Changpeng Zhao. The agency said the platform violated derivatives trading rules by operating without the proper registration.