The United States Commodity Futures Trading Commission (CFTC) has issued a staff advisory letter to registered derivatives clearing organizations (DCOs) and DCO applicants, reminding them about the risks associated with expanding their activities, particularly in the realm of digital assets. The letter, issued by the CFTC Division of Clearing and Risk (DCR), emphasizes specific areas of compliance.
In the advisory letter, the DCR expects DCOs and applicants to actively identify and address new, evolving, or unique risks while implementing risk mitigation measures. The DCR has observed a growing interest among DCOs in expanding the range of cleared products, business lines, clearing models, and services, including those related to digital assets.
The DCR highlights compliance in three specific areas: system safeguards, conflicts of interest, and physical deliveries. System safeguards are crucial due to the heightened cyber and operational risks associated with digital assets. Potential conflicts of interest are identified, including dependencies on affiliated entities or services.
The concept of “physical delivery” mentioned in the letter refers to the transfer of ownership rights of digital assets from one account or wallet to another. This concern aligns with the U.S. Securities and Exchange Commission’s reported plans to propose a rule impacting crypto firms acting as custodians for client assets, which has faced criticism within the crypto sector.
The CFTC’s advisory letter also brings attention to Bitnomial, which has a DCO application pending before the CFTC, and LedgerX, a CFTC-regulated clearinghouse recently acquired by MIAX from FTX.
Overall, the advisory letter serves as a reminder to DCOs and applicants about their obligations and provides clarity on compliance requirements in the evolving landscape of digital asset derivatives and clearing.
