On Mar. 28, 2025, CFTC issued Staff Letter 25-08, withdrawing Staff Advisory 23-07, Review of Risks Associated with Expansion of DCO Clearing of Digital Assets.
Withdrawal of Staff Advisory 23-07 to ensure it does not suggest its regulatory treatment of digital asset derivatives will vary from its treatment of other products.
Division of Clearing & Risk (DCR) conducts supervision of clearing activities, oversight of CEA, CFTC regs regardless of specific commodity underlying relevant contracts.
On May 30, CFTC issued staff advisory on DCOs clearing digital assets.
CFTC Division of Clearing and Risk (DCR) issued staff advisory on risks associated with expansion of derivatives clearing organization (DCOs) clearing for digital assets (DAs).
Additionally, CFTC released statement made by Commissioner Kristin Johnson.
Advisory Overview
The advisory reminds registrants and applicants about expanding lines of business.
When changing business models or offering new and novel products, DCR will remain focused on potentially heightened risks associated with some of such clearing activities
CFTC expects DCOs and applicants to actively identify new, evolving, or unique risks.
Also to implement risk mitigation measures tailored to the risks changes may present.
Because of the increased cyber and other risks that may be associated with digital assets, CFTC will emphasize compliance with the DCO core principles.
Particularly as related to system safeguards, conflicts of interest, and physical delivery.
Cyber Risks Focus
Due to higher cyber and other operational risks of DAs, CFTC will emphasize compliance with the systems safeguards requirements under the CEA and 17 CFR 39.
Focus on DCOs using affiliated entities or services, e.g., dual-hatted executives, shared systems and resources, etc. or other models with risks of conflicts of interest.
CFTC will emphasize reviews of DCOs’ establishment and enforcement of rules to minimize conflicts of interest and processes for resolving conflicts of interest.
Addressed DCOs clearing contracts that may involve physical delivery of digital assets.
For these DCOs, CFTC will emphasize reviews of physical settlement arrangements.
Including whether DCOs have adequately identified and managed risks and obligations.
Commissioner Johnson Statement
Johnson said, while she supports the advisory, the rationale for such a notice indicates the increasingly urgent need for the CFTC to initiate a formal rulemaking process.
Specifically, proposed rules should address custody and client asset protection.
Also conflicts of interest arising from vertical integration of activities and functions.
Operational and technological risk, specifically cyber risks; market manipulation, fraud.
Mar. 2025 CFTC Updated Advisory
On Mar. 28, 2025, CFTC issued Staff Letter 25-08, withdrawing Staff Advisory 23-07, Review of Risks Associated with Expansion of DCO Clearing of Digital Assets.
Withdrawal of Staff Advisory 23-07 to ensure it does not suggest its regulatory treatment of digital asset derivatives will vary from its treatment of other products.
Division of Clearing & Risk (DCR) conducts supervision of clearing activities, oversight of CEA, CFTC regs regardless of specific commodity underlying relevant contracts.
