CFTC Officials Calling for Amendment of Rules to Address Crypto and AI Risks
On Thursday, the Commodity Futures Trading Commission (CFTC) reported the potential risks associated with emerging technologies such as artificial intelligence technology and cryptocurrency. After reviewing the current regulations, the CFTC officials urged the policy makers to revise the rules on risk management associated with the new technologies.
Besides revising the rules, the CFTC requested the regulatory agencies to account for the risks related to evolving technologies. A statement issued by the CFTC commissioner Christy Goldsmith Romero argued that since the launch of the decentralized ledger networks, key market players have invested in developing their technologies.
CFTC Proposed Regulations for Crypto and AI
Romero confirmed that today’s businesses had experienced gradual growth following the emergence of cloud data storage technology and computing infrastructure. She added that artificial intelligence technology had transformed the current business landscape.
In her statement, the commissioner was more concerned about the inherent risks associated with emerging technologies. She outlined the potential risk associated with the digital asset and AI.
Citing the current banking crisis, Romero confessed that before the fallout of Signature and Silvergate banks, the financial institutions provided banking services to crypto firms. She underscored the impact of the risk linked to the collapse of the major crypto-friendly banks in the US.
Romero mentioned that crypto derivatives, which are well regulated, exposed customers to risks. Consequently, Romero admitted that the unregulated crypto spot market exposes the user to the risk of losses.
Referring to last year’s uncertainty in the crypto space that plunged key market players such as Celsius, Terra Luna, and FTX into liquidity woes, Romero lamented that most customers were exposed to financial losses.
Scrutiny of Crypto and AI Risks
Irrespective of this, Romero noted some operational risks battling the crypto sector. She stated that fraud and misuse of firm finances were among the risks at the operational level.
In her address, Romero also assessed the risk in the crypto custody sector. At times when the broker holds a substantial amount of customer crypto assets, the owner of these assets is exposed to unknown risks.
This occurs when the broker suffers from the third-party custody risks. To prevent such a scenario, the commissioner urged crypto firms to identify the risks and implement proactive measures to address them.
Based on the CFTC announcement, the commissioners issued a notice outlining the proposed rulemaking process. Under the CFTC notice, the public is encouraged to share their valuable input within two months.
Primarily the commissioner anticipates that the rulemaking process would lead to formulation of set of rules for cryptos. Afterward, the community would engage in a thorough voting process, and their decision would determine the rules to be approved.
Factors Contributing to Violation of Crypto Regulations
Following the assessment of digital assets risks, the regulatory agencies have been vigilant in supervising crypto activities. The relevant agencies have launched investigations on larger crypto firms as part of the regulator’s efforts to monitor crypto activities.
A few days ago, the CFTC announced plans to examine the standards of the new crypto products and services available in the market. The CFTC’s strategic action aims to mitigate the crypto regulation violation.
Reportedly in March, the largest crypto exchange by daily trading volume, Binance, was alleged of violating the crypto derivatives rules. Per the regulator’s accusation, Binance failed to comply with the derivatives registration requirement. The regulators mentioned that Binance provided US customers with unregistered crypto products.
Furthermore, the Binance team was accused of guiding the customers to bypass the Know-Your-Customers (KYC) regulations.
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