CFTC’s Division of Clearing and Risk Issues Staff Advisory on the Risks Associated with Expansion of Derivatives Clearing Organization Clearing of Digital Assets

The Commodity Futures Trading Commission, CFTC, has published a press statement in which it announces that its Division of Clearing and Risk (DCR) has issued a new advisory as regards Derivatives Clearing Organizations (DCOs) that aim to expand their product offerings and business lines, particularly in relation to digital assets. As the Division has noticed an increased interest in this context, it wants to remind these organizations that when they expand their operations or introduce new products, they need to be mindful of the potential risks involved. The DCR expects DCOs and applicants to actively identify, and address any new or unique risks associated with these activities by implementing appropriate risk mitigation measures in accordance with the risks of these activities.
In response to these observations, the DCR will be placing greater emphasis on certain areas of concern through its supervisory, review, and examination authorities. Specifically, the Division will focus on the potential risks associated with digital assets, such as cyber and operational risks. DCOs are expected to comply with the system safeguards requirements outlined in the Commodity Exchange Act and Part 39 of the Commission’s regulations to mitigate these risks.
For clearing organizations that have affiliations with other entities or operate business models that may implicate conflicts of interest risks, the Division will prioritize reviewing their policies and procedures to minimize and resolve conflicts of interest. Finally, in the case of organizations involved in clearing contracts that may involve the physical delivery of digital assets, the DCR will prioritize the evaluation of physical settlement arrangements. This evaluation will involve a thorough assessment of whether DCOs have effectively recognized and handled risks and responsibilities linked to digital assets. Additionally, the Division will review DCOs‘ rules to ensure they clearly define any obligations concerning physical deliveries of digital assets. This process will be conducted in collaboration with other relevant CFTC staff.