Speaker 1: Bloomberg Audio Studios, podcasts, radio News.
Speaker 2: We do want to talk a little bit about what's
Speaker 2: going on in the regulatory space when it comes to
Speaker 2: cryptocurrencies and much more. It was a recent IMF working
Speaker 2: paper that found that crypto mining could generate about sevent
Speaker 2: tens percent of global carbon dioxide missions emissions by twenty
Speaker 2: twenty seven. We talk about crypto mining and the impact
Speaker 2: it has on the environment.
Speaker 1: Yeah, indeed, and look, it's one of those key issues
Speaker 1: that we're thinking about as this issue, as this sector
Speaker 1: in crypto has been the focus of so much attention.
Speaker 1: It's come up repeatedly in the presidential race this year
Speaker 1: as well. It's just one of the many issues that
Speaker 1: we want to get into with the Chairman of the
Speaker 1: US Commodity Futures Training Commission at Russian benham Ross, who
Speaker 1: joins us with us here in the Plaza Hotel Russ.
Speaker 1: Great to see you, Thanks so much, welcome for joining us. Look,
Speaker 1: we're talking about climate issues first, and this is why
Speaker 1: we're thinking about the impact of crypto, but also more broadly,
Speaker 1: this is an area that you have lots of tentacles
Speaker 1: in your regulatory position.
Speaker 3: Talk to us about the question.
Speaker 1: Of environmental impact when it comes to crypto, where are
Speaker 1: we thinking about regulation of Ryan Bosch, What sort of
Speaker 1: rules are needed, what does the THEFTC have power over.
Speaker 4: Well, before we even get to the climate impact of
Speaker 4: crypto and crypto mining, I think the larger question in
Speaker 4: the US is the regulatory structure, or really the lack
Speaker 4: of one. I've advocated for almost three years now that
Speaker 4: there's a gap in regulation, and this is just a
Speaker 4: product of the way the US regulatory.
Speaker 3: System is set up.
Speaker 4: Multiple agencies, couple market regulators banking regulators, and for better
Speaker 4: or for worse, we've seen a sustainability in the marketplace,
Speaker 4: sustained demand by customers, both retail and institutional, and really
Speaker 4: what we have to do is make sure that we
Speaker 4: regulate it properly so that customers are protected.
Speaker 3: Market stability is their market resiliency.
Speaker 4: If we can get there, and I think that would
Speaker 4: be my priority, then I think the conversations about climate
Speaker 4: impact energy usage for mining are important to ask an answer,
Speaker 4: and I think those have been actually within the domain
Speaker 4: of questions asked over the past couple of years. A
Speaker 4: couple efforts by some of the miners to co locate
Speaker 4: near power sources that are renewable or even nuclear, some
Speaker 4: other efforts to change the way mining is done to.
Speaker 3: Reduce the carbon footprint.
Speaker 4: But as we worked with Congress over the past couple
Speaker 4: of years to think about legislative efforts, I know this
Speaker 4: issue specifically was on their mind, and they wanted to
Speaker 4: think about disclosures, transparency, information to get to the market
Speaker 4: so that those economic incentives and preferences can essentially be
Speaker 4: manifest through decisions about what tokens to buy or not buy.
Speaker 2: Well, and the energy component so much an important aspect
Speaker 2: of the reliability right making sure that it continues to work.
Speaker 2: I want to go back to the regulatory side. Donald
Speaker 2: Trump has kind of come out and said he's a
Speaker 2: friend of crypto. It seems like Kamala Harris's campaign is
Speaker 2: increasingly embracing towards the crypto world. In terms of your
Speaker 2: push for more oversight of the crypto world, Would you
Speaker 2: continue to do so under a Harris administration?
Speaker 3: Yeah, and I just to be no matter who.
Speaker 2: Yeah, and as friendly as they might be.
Speaker 4: Yeah, to be clear, it's oversight driven by regulatory protection
Speaker 4: and customer protections. This is not me as chair of
Speaker 4: the CFTC advocating for the industry saying that crypto is
Speaker 4: going to be the next great thing.
Speaker 3: This is about my observation as the head.
Speaker 4: Of a market regulator, saying there is a giant gap
Speaker 4: in regulation. There are a lot of customers who are
Speaker 4: either uninformed or don't really know the associated risks with crypto,
Speaker 4: and we have to put the guardrails around this industry.
Speaker 4: And those guardrails are the same guardrails that we put
Speaker 4: around equity markets, derivatives markets, fixed income markets, et cetera.
Speaker 4: No different, no different, but we have to think about Look,
Speaker 4: there are going to be differences on custody, cybersecurity. There
Speaker 4: are components of the financial asset digital assets themselves that
Speaker 4: are very unique from securities or derivatives.
Speaker 3: There's no doubt about that.
Speaker 4: But if we think broadly from a principles based standpoint,
Speaker 4: the markets structure components that have been put in place
Speaker 4: for decades and have worked quite well for US markets
Speaker 4: are the same ones we need to think about for
Speaker 4: digital assets because there's a lot of questions about the
Speaker 4: sustainability of digital assets. But here we are twenty twenty four,
Speaker 4: moving into twenty twenty five FTX, other crises finance a
Speaker 4: lot that we have brought on the enforcement side, and
Speaker 4: there is still I don't know about insatiable demand, but
Speaker 4: there is still demand from retail and institutional and they're
Speaker 4: looking for regulatory structure so that they can increase those flows.
Speaker 1: How open is the industry to regulation. I mean, it's
Speaker 1: obviously a conversation that's ongoing, and you've outlined the complexity
Speaker 1: of how the different agencies work in this front as well.
Speaker 3: Are they engaging?
Speaker 1: Is this something that you're actually able to see productive
Speaker 1: results that won't end open a risk of overregulation.
Speaker 3: Yeah.
Speaker 4: So this is really the tricky part of this because
Speaker 4: I think I argue this often the US capital markets
Speaker 4: are the best in the world because of the regulatory
Speaker 4: structure we have, because of the legal structure we have,
Speaker 4: because of the accountability there is is for bad actors
Speaker 4: and those who violate the law.
Speaker 3: So there are many actors.
Speaker 4: I can't speak for the entire crypto community, but there
Speaker 4: are many who have been very engaged with Washington, both
Speaker 4: in Congress and the executive branch, to see what kind
Speaker 4: of regulatory structure could work around digital assets. Will this
Speaker 4: benefit them most likely? I've said this publicly in the past. Again,
Speaker 4: to my point, US regulation is the reason in part
Speaker 4: why US capital markets are the strongest, deepest, and most
Speaker 4: liquid in the world, So they see a benefit to regulation.
Speaker 3: The word often thrown around is legitimacy.
Speaker 4: But again I want to pull back to what my
Speaker 4: responsibilities are, Protecting customers, protecting market resiliency and in essence
Speaker 4: sometimes financial stability. And as I continue to see this
Speaker 4: market EBB and flow and go through it's sort of
Speaker 4: organic growth, I can't help but raise a red flag
Speaker 4: and say, look, we're seeing this market grow.
Speaker 3: We need to protect customers.
Speaker 2: That's what would you say in terms of the powers
Speaker 2: that are necessary in order for any kind of over
Speaker 2: crypto by the CFTC to really work.
Speaker 4: Yeah, this is a unique part, like we have two
Speaker 4: market regulators CFTC SEC.
Speaker 3: There is a question about around some tokens.
Speaker 4: I've articulated and advocated that bigcoin and ether are commodities
Speaker 4: under existing law.
Speaker 3: Congress wants to change existing law. That's we still debate.
Speaker 4: Sure, but look, we've brought a lot of enforcement cases
Speaker 4: and we bring them through. You know, the authority we
Speaker 4: have over commodity assets, which in many cases is bitcoin
Speaker 4: and ethereum, but ultimately it's registration of exchanges, it's registration
Speaker 4: of broker dealers, it's registration of custodians, clearing houses, data repositories,
Speaker 4: the same again, core components and core regulatory tools that
Speaker 4: we use, and with those registration requirements come ability to
Speaker 4: surveil markets, ability to collect data, and ability to examine
Speaker 4: market participants.
Speaker 1: What is from what you're hearing from the election compaign
Speaker 1: because we ask about it, because it's coming up with
Speaker 1: alarming regularity, someone would say, in how often it's mentioned,
Speaker 1: what are you hearing that sounds like a good idea
Speaker 1: or that sounds like a bad idea in terms of
Speaker 1: where regular regulation should be going from here.
Speaker 4: So, look, we don't want to undermine existing law. We
Speaker 4: don't want to change existing protections that exist for markets
Speaker 4: like derivatives like stocks and bonds.
Speaker 3: We want to.
Speaker 4: Apply what we've learned and what we have in terms
Speaker 4: of authority to regulate markets to crypto. And it's about engagement.
Speaker 4: It's about understanding what the technology is. It's understanding what
Speaker 4: new risks or new variations on existing regulatory tools we
Speaker 4: would have to apply. But I often go and I've
Speaker 4: had conversations with lawmakers in both the Senate the House.
Speaker 4: There have been a lot of really interesting efforts and
Speaker 4: credit to those who have led the way in both
Speaker 4: the House and the Senate to draft bills to contemplate
Speaker 4: giving the CFDC the authority. It's a unique circumstance where
Speaker 4: the CFTC regularly it's commodity derivatives markets, but not the
Speaker 4: underlying market. So we have this gap in commodity cash
Speaker 4: markets or spot markets, and this is where we find
Speaker 4: ourselves with digital assets, all right, So.
Speaker 2: We're still trying to figure out digital assets. We throw
Speaker 2: artificial intelligence into the mix, right increasingly, not new finance
Speaker 2: community has been using it for a long time. I
Speaker 2: do wonder if you guys are planning what tools you
Speaker 2: need to have in place to kind of oversee that aspect.
Speaker 3: So, yeah, it's important question.
Speaker 4: And at this point, almost nine or ten months ago,
Speaker 4: we put out an advisory, a request for comment, a
Speaker 4: consultation document, and in my mind, the steps we needed
Speaker 4: to take as an agency was one information gathering, engagement,
Speaker 4: getting better and smarter ourselves so that we can think
Speaker 4: about what existing rules apply to AI and where there may.
Speaker 3: May be gaps in the space. So we're working through
Speaker 3: some of those comments.
Speaker 4: I'm hopefully going to come out with some form of
Speaker 4: advisory guidance in the near future.
Speaker 3: But it really is can hingin on us being.
Speaker 4: Thoughtful about how AI has been used thus far and
Speaker 4: how it may be used in the future.
Speaker 2: Are you talking to big tech about this?
Speaker 4: We look, when we consult we are as we cast
Speaker 4: a very wide net. We want to learn from everyone,
Speaker 4: and that not only includes the individuals who are directly
Speaker 4: registered or participate in our markets, but it certainly is
Speaker 4: the tech companies who are building these AI platforms and
Speaker 4: models that are essentially being used by the financial institutions.
Speaker 1: We're here, of course talking about climate issues, the global
Speaker 1: business form or kind of take it that into the start
Speaker 1: of it now in just over thirty minutes time, the
Speaker 1: CFTC recently product guidance on voluntary carbon credits. I'm curious
Speaker 1: about the voluntary nature of that, whether that's something that's
Speaker 1: going to be relevant and enforceable, given that that's the
Speaker 1: framing that we're given on this area.
Speaker 4: Yeah, so not unlike crypto in some respects, we've seen
Speaker 4: voluntary carbon credit futures contracts listed over the past couple
Speaker 4: of year, derivatives and once we have futures and derivatives
Speaker 4: listed on our registered exchanges.
Speaker 3: I use this phrase a lot we have as.
Speaker 4: An agency of vested in in the health of the
Speaker 4: underlying market, and in this case it's a voluntary carbon market.
Speaker 4: We want to make sure there's resilience in health and
Speaker 4: high integrity in that cash market, so it's reflected in
Speaker 4: the markets we regulate. Ultimately, from a broad perspective, if
Speaker 4: we're going to transition and hit our twenty fifty targets,
Speaker 4: our one point five target, we're gonna need voluntary carbon markets.
Speaker 4: We're not gonna be able to wean ourselves off of
Speaker 4: coal and some fossil based carbon based energy sources. So
Speaker 4: we're going to need a way to allocate capital transition
Speaker 4: to the Global South and other nations that need to
Speaker 4: transition to low carbon intensive energy sources.
Speaker 2: Twenty seconds Election betting. I know you guys don't like it.
Speaker 2: You've recently lost a court case very quickly. Nothing you'll
Speaker 2: warm up to.
Speaker 4: It's not about what I like or don't like. It's
Speaker 4: not about what the agency likes or doesn't like. It's
Speaker 4: about what the law says, and the law in our
Speaker 4: view says that election betting is against.
Speaker 1: The law that's found them. Thanks very much for joining us,
Speaker 1: THEFTC chair