CFTC commissioner on crypto: Regulators ‘cannot fail to act any longer’ to protect retail public

Caroline Pham, commissioner of the Commodity Futures Trading Commission (CTFC), joins Yahoo Finance Live to explain why she's calling for more crypto regulation and public roundtables, working with the SEC, the Archegos collapse, and her career path.

Video transcript

BRIAN CHEUNG: Welcome back to Yahoo Finance. The collapse of stablecoin project Terra has underscored the ongoing volatility in crypto markets, and underpinning all of that is the debate about how to regulate the emerging space. Joining us now to discuss from a regulatory standpoint down in DC is Commodity Futures Trading Commissioner Caroline Pham. Commissioner Pham, it's really great to have you on the program. Appreciate you taking the time.

You know, we've seen a lot of projects go bust in the crypto space as of late. Just wondering from the CFTC's vantage point, how do you-- how do you view the role of your commission, really, in this what is largely unregulated space?

CAROLINE PHAM: Yeah, absolutely. I'm so glad that you're asking this question because it's so clear with the blow up in Terrra and the knock-on effects to broader crypto markets that regulators really cannot fail to act any longer to do something to make sure that we're protecting the retail public, especially when you've had billions of dollars in value destroyed.

And that's why I said in my op-ed, together with SEC Commissioner Peirce, that we really need to call for public roundtables to examine what exactly happened, get the input and the expertise of the public, and how do we do responsible and pragmatic crypto regulation so that way this doesn't happen again in the future?

I mean, Congress is working on solutions to try to make sure we have a holistic crypto regulatory framework in the United States, but we can do a lot right now to address this problem, tackle it together, and find a solution to protect the public. Otherwise we're just not doing our jobs.

BRIAN CHEUNG: Yeah, Commissioner Pham, you mentioned that op-ed. It's in "The Hill," and it kind of describes how the CFTC and the SEC can work together, which they haven't always done perfectly. In the absence of just, you know, mashing the two commissions together, what do you see as the CFTC's specific role statutorily versus what the SEC can do in this space, because they are a little bit different?

CAROLINE PHAM: Oh, absolutely. Well, so the CFTC back in 2015 first said that Bitcoin was a commodity. You know, the SEC was looking at it after that. And just recently, the US banking regulators have come out and said that they're looking at payment stablecoins. But, honestly, a lot of the stablecoins that are out there right now are being used for trading purposes. And, frankly, given the CFTC's broad jurisdiction, if something is not a security, then it's probably something that the CFTC has regulatory touch points over.

That's why you've got a lot of discussion right now looking at how not only the CFTC regulating the commodity derivatives markets but how we currently regulate the spot markets and how we can extend that jurisdiction over the spot markets. I mean, it's very clear that we have fraud and manipulation authority over those spot markets. That's why we've brought over 50 enforcement actions with about, you know, $750 million in penalties.

But we do have two areas where we have touch points with the spot markets. One of them is in retail forex, and the other one is retail leveraged commodity transactions.

AKIKO FUJITA: Commissioner Pham, it's Akiko here. It's good to talk to you today. Let me just press on that point because we have heard from lawmakers, those like Congressman Ro Khanna who said that the CFTC needs to take on a more expanded role. They've actually put forward legislation on that front. So you've already highlighted what you think falls under your mandate, but I wonder if you think that type of legislation is necessary so that you have a broader umbrella to work with on crypto regulation.

CAROLINE PHAM: Well, and I think this goes exactly to the point that we have decentralized regulation right now where each agency is staking out their turf. So I really welcome the efforts of Congress to provide a clear and holistic regulatory framework over crypto and to make it very clear and even to expand the CFTC's jurisdiction in this space to make sure that there's that clarity for the industry so that way there can be more growth in compliant digital asset markets with adequate protections for the retail public. So I welcome the efforts of Congress, and I look forward to working with the chairman and my fellow commissioners if any legislation is passed.

BRIAN CHEUNG: Another big kind of debate within the crypto markets is the role of exchanges themselves, and that might be a place where there is kind of a clear-cut authority for the CFTC to make sure that things are going OK. You know, cryptocurrency exchanges are different than, say, stock exchanges in the sense that, really, they're different clearinghouse models in the amount of counterparties and third parties that are involved in the process and trading one crypto to, you know, one party from one party to the other. What do you see as the CFTC's role in policing that, because, again, still a very gray area right now?

CAROLINE PHAM: Yeah, so it's very clear in our statute that we have oversight of commodity derivatives markets and particularly over the platforms where those are traded. And I think that, you know, we've had a great framework put in place around the different trading facilities that we have. This has withstood the test of time. It's withstood any number of market stresses since the CFTC was founded in 1975. That's over-- that's nearly 50 years. But I think there's always room in space for innovation in our markets, and that's why in our statute it even says that we are to promote responsible innovation and fair competition.

I think some of the recent developments has really looked into, you know, what are different ways that we can address and tackle risks that might be in the system? I'm really pleased that the CFTC had a nearly all-day roundtable to really dig into and examine these issues. Quite frankly, I wish that we had those kinds of roundtables before we even started exploring this in a formal way. And so I think it's going to be really important that we thoughtfully consider just exactly all of the successes that our market structure currently has and then weigh that against any benefits that innovation might bring.

BRIAN CHEUNG: One other thing that you watch that's outside of the crypto space is just kind of other types of derivative products, and I know that a lot of that has come into focus with the Archegos story from last year, fraud in swaps and just the way that some of these funds are kind of levered up through these total-return swaps, unusual types of securities we don't usually talk about. Tell us about how you're policing that space, especially in this type of market volatility, to make sure there aren't other funds that are blowing up off of this type of situation.

CAROLINE PHAM: The last time we had, you know, the financial crisis and we had you know, these blow-ups and complex, risky, opaque financial products, you know, Congress was very clear in passing the Dodd-Frank Act and giving jurisdiction over, like, 95% of the swaps market to the CFTC-- put into place very comprehensive swap dealer registration and compliance regimes.

And, you know, it's bread and butter for the CFTC to be policing the fraud in the swaps markets. We've brought over billions of dollars in actions, and even just this week we announced a $1.18 billion penalty and recovery, the largest ever in the CFTC's history. So we're very strong on enforcement, but also we are monitoring and surveilling the markets constantly. And I think it's so important that we make sure that we have the integrity in the markets and that the data quality and that the data utility of what we are looking at through swap data reporting is improved.

AKIKO FUJITA: Finally, Commissioner, we are speaking to you during AAPI month. An Asian American face not often that we see in the regulatory space. I know the commission recently tapped a chief diversity officer. You're trying to make inroads on that front, but I wonder if you can speak to the lack of diversity in this space and what you think the CFTC can specifically do to change that.

CAROLINE PHAM: Well, I have to say that I'm just honored and it's a real privilege to be able to represent the AAPI community. I think this is-- this commission is the first time in 30 years that we've had representation at the commission. And I am especially honored because I think that I am the first Vietnamese American woman to be nominated by the president and confirmed by the Senate to an executive-branch role, and that's really so meaningful given that my parents were refugees from the Vietnam War.

You know, there is a lack of diversity, and I think a lot of that has to do with the fact that we really need to be identifying and developing our talent pipeline. I can't tell you the number of times that I've been the only face in the room that looked like mine, and you have to fight for that seat at the table. But if you have developed programs and pathways for the diverse talent to be mentored and lifted up-- you know, a lot of times it's very intimidating to try to get your start in a space like this.

And so I think it's just so important that we continue to work with the industry, and I'm very pleased about the chairman's initiatives and our chief diversity officer and the strategic plan that we are currently developing around that.