WEBVTT - CFTC Chairman Rostin Behnam Talks Cryptocurrencies, AI

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio News.

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<v Speaker 2>We do want to talk a little bit about what's

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<v Speaker 2>going on in the regulatory space when it comes to

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<v Speaker 2>cryptocurrencies and much more. It was a recent IMF working

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<v Speaker 2>paper that found that crypto mining could generate about sevent

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<v Speaker 2>tens percent of global carbon dioxide missions emissions by twenty

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<v Speaker 2>twenty seven. We talk about crypto mining and the impact

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<v Speaker 2>it has on the environment.

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<v Speaker 1>Yeah, indeed, and look, it's one of those key issues

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<v Speaker 1>that we're thinking about as this issue, as this sector

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<v Speaker 1>in crypto has been the focus of so much attention.

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<v Speaker 1>It's come up repeatedly in the presidential race this year

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<v Speaker 1>as well. It's just one of the many issues that

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<v Speaker 1>we want to get into with the Chairman of the

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<v Speaker 1>US Commodity Futures Training Commission at Russian benham Ross, who

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<v Speaker 1>joins us with us here in the Plaza Hotel Russ.

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<v Speaker 1>Great to see you, Thanks so much, welcome for joining us. Look,

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<v Speaker 1>we're talking about climate issues first, and this is why

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<v Speaker 1>we're thinking about the impact of crypto, but also more broadly,

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<v Speaker 1>this is an area that you have lots of tentacles

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<v Speaker 1>in your regulatory position.

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<v Speaker 3>Talk to us about the question.

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<v Speaker 1>Of environmental impact when it comes to crypto, where are

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<v Speaker 1>we thinking about regulation of Ryan Bosch, What sort of

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<v Speaker 1>rules are needed, what does the THEFTC have power over.

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<v Speaker 4>Well, before we even get to the climate impact of

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<v Speaker 4>crypto and crypto mining, I think the larger question in

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<v Speaker 4>the US is the regulatory structure, or really the lack

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<v Speaker 4>of one. I've advocated for almost three years now that

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<v Speaker 4>there's a gap in regulation, and this is just a

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<v Speaker 4>product of the way the US regulatory.

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<v Speaker 3>System is set up.

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<v Speaker 4>Multiple agencies, couple market regulators banking regulators, and for better

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<v Speaker 4>or for worse, we've seen a sustainability in the marketplace,

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<v Speaker 4>sustained demand by customers, both retail and institutional, and really

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<v Speaker 4>what we have to do is make sure that we

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<v Speaker 4>regulate it properly so that customers are protected.

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<v Speaker 3>Market stability is their market resiliency.

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<v Speaker 4>If we can get there, and I think that would

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<v Speaker 4>be my priority, then I think the conversations about climate

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<v Speaker 4>impact energy usage for mining are important to ask an answer,

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<v Speaker 4>and I think those have been actually within the domain

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<v Speaker 4>of questions asked over the past couple of years. A

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<v Speaker 4>couple efforts by some of the miners to co locate

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<v Speaker 4>near power sources that are renewable or even nuclear, some

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<v Speaker 4>other efforts to change the way mining is done to.

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<v Speaker 3>Reduce the carbon footprint.

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<v Speaker 4>But as we worked with Congress over the past couple

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<v Speaker 4>of years to think about legislative efforts, I know this

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<v Speaker 4>issue specifically was on their mind, and they wanted to

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<v Speaker 4>think about disclosures, transparency, information to get to the market

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<v Speaker 4>so that those economic incentives and preferences can essentially be

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<v Speaker 4>manifest through decisions about what tokens to buy or not buy.

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<v Speaker 2>Well, and the energy component so much an important aspect

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<v Speaker 2>of the reliability right making sure that it continues to work.

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<v Speaker 2>I want to go back to the regulatory side. Donald

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<v Speaker 2>Trump has kind of come out and said he's a

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<v Speaker 2>friend of crypto. It seems like Kamala Harris's campaign is

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<v Speaker 2>increasingly embracing towards the crypto world. In terms of your

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<v Speaker 2>push for more oversight of the crypto world, Would you

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<v Speaker 2>continue to do so under a Harris administration?

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<v Speaker 3>Yeah, and I just to be no matter who.

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<v Speaker 2>Yeah, and as friendly as they might be.

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<v Speaker 4>Yeah, to be clear, it's oversight driven by regulatory protection

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<v Speaker 4>and customer protections. This is not me as chair of

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<v Speaker 4>the CFTC advocating for the industry saying that crypto is

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<v Speaker 4>going to be the next great thing.

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<v Speaker 3>This is about my observation as the head.

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<v Speaker 4>Of a market regulator, saying there is a giant gap

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<v Speaker 4>in regulation. There are a lot of customers who are

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<v Speaker 4>either uninformed or don't really know the associated risks with crypto,

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<v Speaker 4>and we have to put the guardrails around this industry.

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<v Speaker 4>And those guardrails are the same guardrails that we put

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<v Speaker 4>around equity markets, derivatives markets, fixed income markets, et cetera.

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<v Speaker 4>No different, no different, but we have to think about Look,

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<v Speaker 4>there are going to be differences on custody, cybersecurity. There

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<v Speaker 4>are components of the financial asset digital assets themselves that

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<v Speaker 4>are very unique from securities or derivatives.

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<v Speaker 3>There's no doubt about that.

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<v Speaker 4>But if we think broadly from a principles based standpoint,

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<v Speaker 4>the markets structure components that have been put in place

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<v Speaker 4>for decades and have worked quite well for US markets

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<v Speaker 4>are the same ones we need to think about for

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<v Speaker 4>digital assets because there's a lot of questions about the

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<v Speaker 4>sustainability of digital assets. But here we are twenty twenty four,

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<v Speaker 4>moving into twenty twenty five FTX, other crises finance a

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<v Speaker 4>lot that we have brought on the enforcement side, and

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<v Speaker 4>there is still I don't know about insatiable demand, but

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<v Speaker 4>there is still demand from retail and institutional and they're

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<v Speaker 4>looking for regulatory structure so that they can increase those flows.

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<v Speaker 1>How open is the industry to regulation. I mean, it's

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<v Speaker 1>obviously a conversation that's ongoing, and you've outlined the complexity

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<v Speaker 1>of how the different agencies work in this front as well.

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<v Speaker 3>Are they engaging?

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<v Speaker 1>Is this something that you're actually able to see productive

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<v Speaker 1>results that won't end open a risk of overregulation.

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<v Speaker 3>Yeah.

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<v Speaker 4>So this is really the tricky part of this because

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<v Speaker 4>I think I argue this often the US capital markets

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<v Speaker 4>are the best in the world because of the regulatory

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<v Speaker 4>structure we have, because of the legal structure we have,

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<v Speaker 4>because of the accountability there is is for bad actors

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<v Speaker 4>and those who violate the law.

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<v Speaker 3>So there are many actors.

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<v Speaker 4>I can't speak for the entire crypto community, but there

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<v Speaker 4>are many who have been very engaged with Washington, both

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<v Speaker 4>in Congress and the executive branch, to see what kind

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<v Speaker 4>of regulatory structure could work around digital assets. Will this

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<v Speaker 4>benefit them most likely? I've said this publicly in the past. Again,

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<v Speaker 4>to my point, US regulation is the reason in part

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<v Speaker 4>why US capital markets are the strongest, deepest, and most

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<v Speaker 4>liquid in the world, So they see a benefit to regulation.

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<v Speaker 3>The word often thrown around is legitimacy.

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<v Speaker 4>But again I want to pull back to what my

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<v Speaker 4>responsibilities are, Protecting customers, protecting market resiliency and in essence

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<v Speaker 4>sometimes financial stability. And as I continue to see this

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<v Speaker 4>market EBB and flow and go through it's sort of

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<v Speaker 4>organic growth, I can't help but raise a red flag

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<v Speaker 4>and say, look, we're seeing this market grow.

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<v Speaker 3>We need to protect customers.

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<v Speaker 2>That's what would you say in terms of the powers

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<v Speaker 2>that are necessary in order for any kind of over

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<v Speaker 2>crypto by the CFTC to really work.

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<v Speaker 4>Yeah, this is a unique part, like we have two

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<v Speaker 4>market regulators CFTC SEC.

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<v Speaker 3>There is a question about around some tokens.

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<v Speaker 4>I've articulated and advocated that bigcoin and ether are commodities

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<v Speaker 4>under existing law.

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<v Speaker 3>Congress wants to change existing law. That's we still debate.

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<v Speaker 4>Sure, but look, we've brought a lot of enforcement cases

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<v Speaker 4>and we bring them through. You know, the authority we

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<v Speaker 4>have over commodity assets, which in many cases is bitcoin

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<v Speaker 4>and ethereum, but ultimately it's registration of exchanges, it's registration

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<v Speaker 4>of broker dealers, it's registration of custodians, clearing houses, data repositories,

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<v Speaker 4>the same again, core components and core regulatory tools that

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<v Speaker 4>we use, and with those registration requirements come ability to

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<v Speaker 4>surveil markets, ability to collect data, and ability to examine

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<v Speaker 4>market participants.

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<v Speaker 1>What is from what you're hearing from the election compaign

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<v Speaker 1>because we ask about it, because it's coming up with

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<v Speaker 1>alarming regularity, someone would say, in how often it's mentioned,

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<v Speaker 1>what are you hearing that sounds like a good idea

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<v Speaker 1>or that sounds like a bad idea in terms of

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<v Speaker 1>where regular regulation should be going from here.

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<v Speaker 4>So, look, we don't want to undermine existing law. We

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<v Speaker 4>don't want to change existing protections that exist for markets

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<v Speaker 4>like derivatives like stocks and bonds.

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<v Speaker 3>We want to.

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<v Speaker 4>Apply what we've learned and what we have in terms

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<v Speaker 4>of authority to regulate markets to crypto. And it's about engagement.

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<v Speaker 4>It's about understanding what the technology is. It's understanding what

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<v Speaker 4>new risks or new variations on existing regulatory tools we

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<v Speaker 4>would have to apply. But I often go and I've

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<v Speaker 4>had conversations with lawmakers in both the Senate the House.

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<v Speaker 4>There have been a lot of really interesting efforts and

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<v Speaker 4>credit to those who have led the way in both

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<v Speaker 4>the House and the Senate to draft bills to contemplate

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<v Speaker 4>giving the CFDC the authority. It's a unique circumstance where

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<v Speaker 4>the CFTC regularly it's commodity derivatives markets, but not the

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<v Speaker 4>underlying market. So we have this gap in commodity cash

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<v Speaker 4>markets or spot markets, and this is where we find

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<v Speaker 4>ourselves with digital assets, all right, So.

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<v Speaker 2>We're still trying to figure out digital assets. We throw

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<v Speaker 2>artificial intelligence into the mix, right increasingly, not new finance

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<v Speaker 2>community has been using it for a long time. I

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<v Speaker 2>do wonder if you guys are planning what tools you

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<v Speaker 2>need to have in place to kind of oversee that aspect.

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<v Speaker 3>So, yeah, it's important question.

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<v Speaker 4>And at this point, almost nine or ten months ago,

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<v Speaker 4>we put out an advisory, a request for comment, a

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<v Speaker 4>consultation document, and in my mind, the steps we needed

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<v Speaker 4>to take as an agency was one information gathering, engagement,

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<v Speaker 4>getting better and smarter ourselves so that we can think

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<v Speaker 4>about what existing rules apply to AI and where there may.

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<v Speaker 3>May be gaps in the space. So we're working through

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<v Speaker 3>some of those comments.

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<v Speaker 4>I'm hopefully going to come out with some form of

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<v Speaker 4>advisory guidance in the near future.

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<v Speaker 3>But it really is can hingin on us being.

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<v Speaker 4>Thoughtful about how AI has been used thus far and

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<v Speaker 4>how it may be used in the future.

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<v Speaker 2>Are you talking to big tech about this?

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<v Speaker 4>We look, when we consult we are as we cast

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<v Speaker 4>a very wide net. We want to learn from everyone,

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<v Speaker 4>and that not only includes the individuals who are directly

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<v Speaker 4>registered or participate in our markets, but it certainly is

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<v Speaker 4>the tech companies who are building these AI platforms and

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<v Speaker 4>models that are essentially being used by the financial institutions.

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<v Speaker 1>We're here, of course talking about climate issues, the global

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<v Speaker 1>business form or kind of take it that into the start

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<v Speaker 1>of it now in just over thirty minutes time, the

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<v Speaker 1>CFTC recently product guidance on voluntary carbon credits. I'm curious

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<v Speaker 1>about the voluntary nature of that, whether that's something that's

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<v Speaker 1>going to be relevant and enforceable, given that that's the

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<v Speaker 1>framing that we're given on this area.

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<v Speaker 4>Yeah, so not unlike crypto in some respects, we've seen

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<v Speaker 4>voluntary carbon credit futures contracts listed over the past couple

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<v Speaker 4>of year, derivatives and once we have futures and derivatives

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<v Speaker 4>listed on our registered exchanges.

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<v Speaker 3>I use this phrase a lot we have as.

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<v Speaker 4>An agency of vested in in the health of the

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<v Speaker 4>underlying market, and in this case it's a voluntary carbon market.

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<v Speaker 4>We want to make sure there's resilience in health and

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<v Speaker 4>high integrity in that cash market, so it's reflected in

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<v Speaker 4>the markets we regulate. Ultimately, from a broad perspective, if

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<v Speaker 4>we're going to transition and hit our twenty fifty targets,

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<v Speaker 4>our one point five target, we're gonna need voluntary carbon markets.

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<v Speaker 4>We're not gonna be able to wean ourselves off of

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<v Speaker 4>coal and some fossil based carbon based energy sources. So

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<v Speaker 4>we're going to need a way to allocate capital transition

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<v Speaker 4>to the Global South and other nations that need to

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<v Speaker 4>transition to low carbon intensive energy sources.

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<v Speaker 2>Twenty seconds Election betting. I know you guys don't like it.

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<v Speaker 2>You've recently lost a court case very quickly. Nothing you'll

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<v Speaker 2>warm up to.

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<v Speaker 4>It's not about what I like or don't like. It's

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<v Speaker 4>not about what the agency likes or doesn't like. It's

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<v Speaker 4>about what the law says, and the law in our

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<v Speaker 4>view says that election betting is against.

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<v Speaker 1>The law that's found them. Thanks very much for joining us,

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<v Speaker 1>THEFTC chair