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A recent advisory from the Commodity Futures Trading Commission (CFTC) regarding the Foreign Board of Trade (FBOT) framework is unlikely to entice offshore cryptocurrency exchanges to operate within the United States. According to Eli Cohen, general counsel at Centrifuge, the existing regulatory requirements are not compatible with the nature of crypto exchanges.
Key Takeaways
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The FBOT framework's requirements are designed for traditional finance and are ill-suited for crypto exchanges.
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Only highly regulated entities with existing frameworks in their home countries can apply for FBOT registration.
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Many offshore exchanges deliberately choose unregulated jurisdictions to avoid such stringent regulations.
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A comprehensive crypto market structure bill is seen as the most effective way to provide regulatory clarity.
Regulatory Hurdles for Crypto Exchanges
Eli Cohen explained that the settlement, clearing, and other regulatory demands inherent in the FBOT framework, which are tailored for the traditional financial system, present significant challenges for crypto exchanges. He stated that these requirements are either difficult or impossible for crypto platforms to meet.
Eligibility Criteria for FBOT Framework
Further complicating matters, the CFTC's guidance specifies that only Licensed Futures Commission (FCM) exchanges, which function as broker-dealers for futures contracts, and similarly highly regulated entities are eligible to apply under the FBOT framework. Cohen highlighted that a crucial prerequisite is having an established regulatory framework in the exchange's home country, a condition that many offshore exchanges actively seek to avoid by operating in less regulated jurisdictions like Seychelles.
Path to Regulatory Clarity
Cohen suggested that the most effective solution for providing much-needed clarity to the cryptocurrency industry would be the passage of a crypto market structure bill by Congress. Such legislation would codify crypto regulations into law, establishing a stable and lasting framework that is not subject to the shifts between different administrations. The CFTC's "crypto sprint" initiative aims to overhaul crypto regulations, aligning with the U.S. president's goal of positioning the nation as a global leader in cryptocurrency. This initiative includes proposals for joint oversight of crypto by the Securities and Exchange Commission (SEC) and the CFTC, and potential changes like perpetual financial markets with 24/7 trading cycles.
Sources
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Offshore Crypto Exchange's Won't Use FBOT Framework To Do Business in US, Cointelegraph.
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FBOT registry won't bring offshore crypto exchanges to the US — Attorney — TradingView News, TradingView.
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