CFTC Frees Crypto Derivatives From Extra Scrutiny

Crypto advocates scored big as the CFTC scrapped a directive singling out digital asset derivatives, easing scrutiny and marking a sharp split among U.S. regulators.

Barriers Drop—CFTC’s Crypto Retreat Sets Stage for Relentless Upside

Another win for crypto supporters arrived March 28 when the Commodity Futures Trading Commission (CFTC) announced that its Division of Clearing and Risk (DCR) has withdrawn Staff Advisory No. 23-07, a directive that had previously signaled increased regulatory scrutiny for digital asset derivatives.

The advisory, originally released May 30, 2023, had focused on the risks tied to the expansion of derivatives clearing organizations (DCOs) into digital asset markets, prompting concerns among industry stakeholders that crypto-based products would be singled out for tougher oversight. The decision to pull the advisory took effect immediately. The CFTC explained the rationale behind its decision by referencing the accompanying withdrawal letter:

As stated in today’s withdrawal letter, DCR determined to withdraw the advisory to ensure that it does not suggest that its regulatory treatment of digital asset derivatives will vary from its treatment of other products.

Staff Advisory No. 23-07 had warned DCOs and applicants to anticipate closer scrutiny when introducing new business lines or clearing models involving digital assets. The advisory placed specific emphasis on compliance with system safeguards, management of operational risks, and rules surrounding the physical settlement of digital asset contracts.

Under the rescinded guidance, DCR had planned to focus reviews on areas such as cybersecurity, shared infrastructure between affiliated entities, and clear delineation of responsibilities in the case of physical delivery of digital assets. The advisory also reminded DCOs to prepare for risk assessments tailored to the unique characteristics of digital products. While the withdrawal eliminates a standalone framework for digital asset clearing oversight, the CFTC noted it remains committed to maintaining robust standards while supporting “safe and sound, orderly, and fairly competitive clearing systems” through consistent regulation.

Meanwhile, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) have rescinded prior guidance that required banks to obtain regulatory approval before engaging in crypto-related activities. These efforts reflect a broader trend among U.S. financial regulators to reduce barriers and encourage responsible innovation in the digital asset space.