The rather spectacular downfall of the once-popular crypto exchange FTX is reverberating in the crypto market and many companies have suffered in its wake.
On Thursday, a leading financial regulator in the United States also said that in light of the recent disaster, lawmakers should take quick action and introduce a regulatory framework for the crypto industry.
A number of congressional hearings have been scheduled for discussing and examining the failure of the FTX crypto exchange.
In the first of the said hearings, the head of the Commodity and Futures Trading Commission (CFTC), Rostin Behnam, was questioned by the Senate Agriculture Committee.
The members questioned the CFTC chief if better oversight could have helped in avoiding the current crypto market turmoil.
Behnam said that the CFTC does not have the ability to register cash market exchanges and this has reduced its authority significantly.
He informed lawmakers that this is the gap that needs to be filled and this is what concerns him the most.
He asserted that unless they take quick action, the customers would continue losing money and they would end up in a similar situation in the next few months.
FTX and Ledger X
The regulator also disclosed to lawmakers that he had had meetings with Sam Bankman-Fried, the former chief executive officer of the FTX exchange, about 10 times.
He also said that they had also talked on messages and calls about the application submitted by FTX for clearing its customer trades directly.
The FTX crypto exchange collapsed on November 11th via a bankruptcy filing in Delaware and Bankman-Fried also stepped down as the CEO.
This was after a rescue deal was abandoned by competitor Binance and traders had withdrawn a whopping $6 billion from the crypto exchange.
The bankruptcy proceedings of FTX did not include the name of LedgerX, which is a subsidiary regulated by the CFTC.
Since the collapse, the subsidiary withdrew its application of becoming a clearing house. Behnam said that the customer property of LedgerX is secure and it can continue to function for the foreseeable future.
He was quick to add that the CFTC cannot examine any of the other entities associated with FTX because of a lack of legal authority.
Therefore, they do not have any knowledge about the operations of other FTX-related subsidiaries. Behnam had previously asked lawmakers to grant more authority for regulating digital assets.
In Thursday’s congressional hearing, he continued to urge the lawmakers to take quick action in this regard.
The derivatives market comes under the oversight of the CFTC, which involves major players like money managers.
It cannot regulate spot markets, but it does have the authorization to crack down on misconduct and fraud. The CFTC chief said that they have numerous tools for assisting defrauded customers.
But, he said that the process is long and complicated and sometimes, complete recovery is not possible.
There is currently a squabble between regulators about who should be responsible for crypto market oversight.
Many members of the Senate Agriculture Committee are of the opinion that the CFTC should be given the primary responsibility.
However, the expertise of overseeing markets that involve individual investors belongs to the Securities and Exchange Commission (SEC) in the US.
Gary Gensler, the chairman of the SEC, has said that they believe the role of the primary regulator should be assigned to his agency because most of the crypto tokens in the market are actually securities.