Former SEC and CFTC officials urge regulatory reforms for crypto to prevent trading from moving offshore, as the SEC revises custody regulations.
Overview
A bipartisan group of former officials from the SEC and CFTC has called for regulatory reforms to bring crypto trading back onshore. Key figures such as Chris Giancarlo and Brian Quintenz argue that similar risks in the crypto sector should be met with comparable regulatory measures, warning that current rules are driving trading overseas.
With the crypto market valued at $2.5 trillion, the SEC and CFTC are actively working on regulatory frameworks during Congress's recess. Their focus includes clarifying definitions of derivatives and jurisdictional boundaries, as well as revising custody regulations for digital assets.
Concerns Over Offshore Trading
In a recent letter, the former officials stressed the need for a consistent regulatory approach to prevent profitable crypto markets from shifting abroad. They noted that the CFTC is particularly interested in re-establishing perpetual futures trading within the U.S., which has largely moved offshore due to regulatory pressures. For instance, Kalshi estimates that offshore trading in perpetuals surged to $90 trillion by 2025, up from $28 trillion two years earlier.
Giancarlo highlighted the urgency of creating a practical regulatory framework, stating, “If we align federal regulations with actual risks rather than imposing maximum burdens, that liquidity will return to the U.S. market.” He emphasized that each year of delay complicates efforts to attract trading back to the U.S.
SEC's Custody Regulations Revision
In a separate development, the SEC has submitted proposed changes to its custody regulations for investment advisors to the White House for review. This move aims to clarify how regulated firms can manage digital assets while complying with federal laws. The specifics of this proposal remain undisclosed, leaving uncertainty about which firms will qualify as custodians under the new rules.
This revision marks a departure from the SEC's previous stance, where a comprehensive safeguarding rule was proposed but later abandoned. The SEC is also advancing its "Reg Crypto" initiative, which is open for public commentary until October 20, aiming to establish new regulations for specific crypto asset offerings.
